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Image Source: Abdullah Bin Sahl
Clare Burnett

Republic of Ireland to scrap tax loophole exploited by multinationals

The Republic of Ireland is set to phase out a tax loophole that multinationals such as Google and Apple use to save billions of dollars.

These proposed changes to its corporate tax structure were announced in Tuesday’s budget, and come as Brussels puts pressure on the country to fall in line with EU rules, and rein in countries it thinks are positioning themselves as tax shelters.

Ireland, which left a European Union/IMF bailout programme only last year, is reportedly in the midst of an economic resurgence that the euro zone has held up as proof that austerity policies can work.

Finance Minister Michael Noonan responded to criticism over the past 18 months from both the EU and the United States for Irish tax rules that have enabled firms such as Google and Apple to cut their overseas tax rates to single digits.

The changes spell the eventual end to “Double Irish” schemes, so-called because they involve multinationals setting up two Irish subsidiaries to slash their tax liabilities.

Noonan told Reuters: “I want to make sure that the slur of the “Double Irish” is no longer attached to Ireland’s reputation and it had become something that was thrown at us internationally.”

“There’s a big advantage I believe forIreland to be the first mover. Our competitor countries, if you were investing there tomorrow you would still be uncertain about what the regime might be in two years time.”

Joaquin Almunia, the European Commission’s vp for competition policy, in a statement on October 7 said: “National authorities must not allow selected companies to understate their taxable profits by using favorable calculation methods.

“It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment,”

This could potentially put 160,000 jobs at risk, almost one in 10 workers in the country, paid for by about 1,000 foreign firms that have set up a base in Ireland to benefit from its tax code and flexible, English-speaking work force.

Part of the Irish tax code is a corporate structure in which a multinational can channel untaxed revenues to an Irish subsidiary, which then pays the money to another company registered in Ireland that is tax resident elsewhere, usually in a tax haven.

From January, Irish-registered firms will automatically be deemed to be tax resident in Ireland, bringing Irish law in line with U.S. and British rules. Companies already incorporated in Ireland will have until 2020 to comply with the new rules.

The head of Google’s Irish operations John Herlihy said in a statement that the company was deeply committed to Ireland and will work to implement the changes as they become law.

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