Ireland plans to eliminate corporate tax loophole

In another step that will hinder the ability of multinational companies to move profits to low-tax jurisdictions, the government of Ireland announced in its Budget 2015 on Tuesday that it plans to eliminate the so-called double-Irish tax manoeuvre. Ireland has positioned itself as a low-tax jurisdiction to attract foreign multinationals, and the double-Irish loophole has been criticised as a method that allows multinationals to avoid paying tax.

The double-Irish manoeuvre involves making tax-free royalty payments to subsidiaries that are incorporated in Ireland but are tax residents of a country with no corporate income tax. The Budget 2015 changes will require companies incorporated in Ireland to also be Ireland tax residents. The details of how this will work were not revealed on Tuesday but will be included in the upcoming Finance Bill. The change will be effective January 1st 2015. There will be a transition rule that will apply until the end of 2020 for companies in existence before 2015, giving them time to restructure their businesses.

While the Budget 2015 statement eliminates the double-Irish loophole, it does not raise Ireland’s low 12.5% corporate tax rate. Other tax-minimisation strategies involving Ireland are also not affected.

Even as it was abolishing the double-Irish manoeuvre, the Irish government indicated that it is exploring a version of the patent box, which would provide tax breaks for revenues from intellectual property. A public consultation will be held later this year to deliberate on how this would work, and the government expects to introduce legislation to implement the plan in 2015.

Tax-minimisation strategies by multinational corporations are increasingly coming under pressure in Europe and around the world as countries seek to bolster tax revenues by making it more difficult for companies to move profits to low-tax jurisdictions.

Related CGMA Magazine content:

“OECD Delivers First 7 Pieces of Base Erosion Action Plan”: The Organisation for Economic Co-operation and Development (OECD) released the first seven reports and recommendations called for in its 2013 Action Plan on Base Erosion and Profit Shifting.

“EU Moves to Close Multinational Corporations’ Hybrid Mismatch Loophole”: The EU’s Economic and Financial Affairs Council (ECOFIN) is closing a loophole that allows multinational corporations to lower their taxes by exploiting differences in tax rules between countries.

“Forty-Four Countries Agree to Deadline for Automatic Exchange of Tax Information”: Forty-four countries issued a joint statement pledging their commitment to early adoption of the OECD’s common reporting standard on automatic exchange of information among countries for tax enforcement purposes.

—Alistair Nevius (anevius@aicpa.org) is CGMA Magazine’s editor-in-chief, tax.