(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Dominic Elliott
LONDON, Oct 14 (Reuters Breakingviews) - Dublin's move to annul the "Double Irish" removes one of the most fiendish tax dodges in the corporate world. Finance Minister Michael Noonan on Oct. 14 abolished the loophole and gave companies until the end of 2020 to wean themselves off the scheme. Big tech multinationals like Facebook, Apple and Google may carp in the short term. But the simplification should ultimately benefit all companies.
The loophole allowed, say, a U.S. company to incorporate two Irish companies, only one of which needed to be tax-resident in Eire. The other would house the company's intellectual property and could be tax-resident in an offshore haven such as Bermuda or the Cayman Islands. That arrangement was especially attractive to the tech sector, which typically has 80 percent of its net assets bound up in intellectual property - more than the 50 percent average for other industries, according to a leading tax adviser.
Tech companies that used the Double Irish now have three options - all of which will hurt. They can shift IP costs back to their home country, move them to a country with a so-called patent box, or seek out a tax haven without the kudos of an Irish imprimatur. The first two will add to their tax bill, while the last now comes with reputational costs.
Noonan's pledge that Ireland will soon offer its own patent box scheme - allowing IP to be developed at a lower cost - should help maintain his country's tax attractions. Given rates charged for patent boxes are typically about 50 percent to 60 percent lower than a country's headline corporation tax, Ireland's could be 5.25 percent to 6 percent. That would be competitive internationally: the UK's is 10 percent, while the Netherlands and Luxembourg charge 5 percent.
Meanwhile, the demise of the Double Irish reduces tax uncertainty for multinationals in general. Shareholders used to expect companies to limit their tax bills, but austerity means corporates worldwide are increasingly expected to pay their fair share. Ireland's first austerity-free budget in seven years may have made it easier for Noonan to end Ireland's tax wheeze, but he is pushing against an open door.
- Ireland Finance Minister Michael Noonan on Oct. 14 abolished a tax loophole known as the "Double Irish" as he outlined the country's budget for 2015.
- The Double Irish allowed a multinational to register two companies in Ireland, with only one being resident for tax purposes. Noonan said he was changing Ireland's rules to require all companies registered in the country to also be tax-resident.
- Noonan said: "Aggressive tax planning by multinational companies has been criticised by governments across the globe and has damaged the reputation of many countries. Schemes that exploit mismatches in tax legislation are being heavily scrutinised by the OECD and others ... they will come to an end over time."
- The legal change will take effect from the start of next year and companies that currently use the Double Irish will have until 2020 to find alternative arrangements.
- Noonan also said he would in future introduce a "Knowledge Development Box", akin to patent boxes used in other countries. These allow companies to offset intellectual property costs by charging companies a lower rate of tax for related spending.
- Irish finance ministry statement on 2015 budget: http://bit.ly/1v8Q73h
- Reuters: Ireland calls time on austerity, 'Double Irish' tax dodge
Statehood and Apple pry
Start at the top
- For previous columns by the author, Reuters customers can click on (On Twitter https://twitter.com/DominicElliott. Editing by George Hay and Martin Langfield)
Our Standards: The Thomson Reuters Trust Principles.