Expert group warned about tax avoidance in 1990s

A high-level expert group advised the Government nearly 20 years ago to tackle the misuse of Irish-registered non-resident companies as they were causing reputational damage to Ireland.

In 1998, the tax strategy group in the Department of Finance raised concern about the proliferation of these companies in Ireland, which were being used to avoid tax.

Two of the Apple companies at the heart of the EU Commission ruling over State aid were Irish-registered non-resident firms (IRNRs).

If the group’s wide-ranging recommendations and reforms had been adopted, it would have closed off many loopholes and impinged on aggressive tax minimisation arrangements, such as the one used by Apple.

However, its main recommendations were never implemented by government.

“IRNR companies have posed a threat to Ireland’s international image and its reputation as a well-regulated jurisdiction for conducting business,” stated the group’s report, prepared in November 1998.

Open to abuse

Sinn Féin officials researching the issue recently came upon the document.

Yesterday a party spokesman said: “Eighteen years ago the Department of Finance was aware that these companies’ structures were open to abuse, with possible reputational damage to this State.

“Successive ministers failed to deal effectively with the issue and we are now seeing massive tax avoidance and damage to our reputation. That is why we need an inquiry into the handling of this issue over successive governments.”

The paper defines an IRNR company as one that is incorporated in Ireland under Irish company law, but is not resident here for tax purposes because the company is controlled and managed abroad.

The two Apple companies were structured in that way.

Such companies were able to benefit from a “mismatch” between Irish tax laws on residency and those of the US, in order to minimise tax on global non-US income to nearly zero.

For sale

The paper focused on those companies that were “regularly advertised ‘for sale’ in international magazines, often alongside companies that are incorporated in tax havens and jurisdictions with relaxed regulatory regimes.

“Many IRNR companies have little or no connection with the country and some may be used for tax evasion, money laundering and fraud. A number of fraud cases involving IRNR’s have been covered recently in the press.

“On the other hand, IRNR companies are used by several multinationals for legitimate international tax purposes,” it stated.

The paper said measures would be needed to target companies with no economic connection with Ireland and to make them compatible with EU state aid provisions.

More than 15 measures were suggested, principally an “activity test” for all such companies, a change in the tax residence rules, and a requirement for an Irish director.

There was a major alternative proposal: “to make registration a test of residence for all companies without exception and give existing IRNR companies a grace period, eg three or five years, in which to establish alternative structures.