Ranking Irish officials expressed concern the “double-Irish” corporate tax mechanism was undermining the State’s “international tax credibility” before the Government moved to scrap the loophole in this year’s budget.
Newly released records of the influential Tax Strategy Group show officials also took note US president Barack Obama had criticised other tax stratagems deployed in Ireland by big global companies.
The Tax Strategy Group – comprising top officials from the Departments of Finance and the Taoiseach, Revenue and other bodies – prepares policy options for the Cabinet ahead of the budget each year.
In the face of mounting international pressure to stamp out aggressive corporate tax mechanisms, the Government resolved last October to phase out the double-Irish scheme.
The mechanism, which attracted considerable international criticism, plays on differences between Irish law and the law in offshore jurisdictions to help multinationals minimise their tax burden. Beneficiaries include internet search engine giant Google and pharmaceutical groups.
Tax Strategy Group papers from Budget 2015, published yesterday by the Department of Finance, took stock of pressure on the Irish business tax regime in Europe and the US.
While the 12.5 per cent corporate tax rate was settled policy, the 26-page paper on corporate tax issues said “tax reputation” was a key factor in securing mobile investment.
International credibility
“Notwithstanding the fact that it is primarily the tax laws of other countries that are deficient . . . nevertheless it is increasingly apparent that the continued existence of the ‘double-Irish’ is undermining Ireland’s international tax credibility,” the paper said.
“Until quite recently, the precise mechanics of the ‘double-Irish’ structure have not been widely understood. Over the last 12 months, however, there has been an increased focus on the role of Ireland’s company-residence rules in relation to the structure.”
Saying the OECD review would lead to the elimination of structures such as the “double-Irish”, the paper said the extent to which countries implemented and adhered to new rules would “impact significantly” on their international reputation and attractiveness.
Taking note of EU state-aid investigations into corporate tax rulings issued in Ireland, the Netherlands and Luxembourg, the paper examined controversy in the US over corporate tax “inversions”.
HQ relocation
Such schemes allow big US companies to cut their American tax bills by taking over an Irish-based group and relocating their corporate headquarters to Ireland.
“Most recently, Ireland was singled out and referred to by US president Obama in his criticism of the practice of US companies ‘inverting’ or changing their nationality for tax purposes,” said the Tax Strategy Group. “While Ireland is by no means the only location where US companies are inverting into, the focus on Ireland in both international political and media circles is unhelpful.
“While the prospect of comprehensive tax reform in the US has diminished, the US remains a vital source of foreign direct investment and US tax developments are carefully monitored.” Setting out how inversions work, the paper said Ireland essentially gained the “brain” of the business group in question “but not necessarily the substantive activities”.
