Finance
minister to sound death knell for controversial scheme that allows
multinationals to slash their overseas tax rates
The Guardian, Henry McDonald in Dublin, Monday 13 October 2014
Apple and
other multinationals based in Ireland are to be given a four-year window before
the phasing out of a scheme that cuts their tax bills.
Amid
mounting international criticism of the arrangements, which save foreign
companies billions of euros, Ireland’s finance minister, Michael Noonan, is
expected to announce the end of the “double Irish” scheme when he delivers his
budget on Tuesday.
The
European commission is investigating “sweetheart” tax deals between the Irish
state and Apple, and last month Brussels provisionally found that the iPhone maker’s tax arrangements in Ireland were so generous as to amount to state aid.
Noonan’s
move may pre-empt measures hinted at by the UK chancellor last month, when he
announced a crackdown on technology firms’ tax strategies at the Conservative
party conference. George Osborne said: “Some of the biggest technology
companies in the world … go to extraordinary lengths to pay little or no tax
here … We will put a stop to it.” Party officials briefed that he had companies
using the double Irish scheme in his sights.
On the
international stage, the G20 group of powerful economies has commissioned the
Organisation for Economic Cooperation and Development to produce a package of
tax reforms to rein in multinationals. This work is expected to be completed by
summer 2015.
Accompanying
a pledge to remove the tax loophole, Noonan’s budget is expected to contain
incentives for multinationals, such as lower tax rates for companies that
centre their research and development facilities on Ireland. The so-called
“patent box” will reward foreign firms that base their technological
developments in the Irish state. This echoes the UK’s regime, which has
attracted criticism from other countries as well as the EU’s code of conduct committee.
One of the
republic’s largest unions, Unite, which has more than 100,000 members in
Ireland, said the phasing out of the double Irish scheme was the result of EU
pressure on the government. Michael Taft, an economist at Unite, said: “What
corporations like Apple will lose when they get rid of the double Irish they
will make up for in terms of other tax schemes for things like research and
development.”
Tasc, the
Dublin-based, centre-left economic thinktank, has warned that global publicity
over the double Irish and other similar tax schemes has caused severe
“reputational damage” for Ireland. Nat O’Connor, Tasc’s research director,
said: “The negative international view of Ireland’s excessive flexibility
around corporation tax has probably worsened the country’s reputation. Instead,
Ireland needs to highlight the many other reasons why investment here is
attractive, including our English-speaking, well-educated young workforce.
Ireland also needs to rebalance the economy in favour of indigenous companies and
reduce reliance on foreign direct investment.”
The double
Irish loophole allows US companies to reduce their tax bill far below Ireland’s
12.5% corporate tax rate by shifting most of their taxable income from an
operating company in Ireland to another Irish-registered firm in an offshore
tax haven such as Bermuda.
While the
phasing out of the double Irish will be the main item of the budget watched by
the republic’s EU and international partners, Noonan’s plans for the state’s
finances will also be critical, both in terms of Ireland’s fragile recovery but
also the fate of the Fine Gael-Labour coalition.
Tens of
thousands of people marched through central Dublin on Saturday in a protest
against newly proposed water charges. To counter rising anger, Noonan will put
forward a proposal to allow households to claim tax refunds worth up to €100
(about £80) from their water bills.
There is
also expected to be a 1% cut in the top rate of income tax, which stands at
41%. There will also be reductions to the universal social charge, which was
introduced in 2011 to bring in extra revenue to run public services.
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