Finance minister to sound death knell for controversial scheme that allows multinationals to slash their overseas tax rates
|The double Irish loophole allows US companies to reduce their tax bill by moving|
most of their taxable income from an operating firm in Ireland to an Irish-registered
firm in an offshore tax haven, such as Bermuda, above. Photograph: Getty
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.