ValueWalk recently investigated the ‘double Irish’ tax avoidance strategy used by international corporations in light of the continued scrutiny by U.S. and European bodies. Now it seems as if Ireland’s Minister of Finance, Michael Noonan, is going to do something about it. In his budget speech, Mr. Noonan insisted that the Irish government is committed to cracking down on big business tax avoidance.
Ireland in pressure from Europe
In a year when the Irish government has faced continued attacks from Europe over its low corporation taxes, Mr. Noonan stated that new regulations would come into place in January 2015 to stop multinationals from being ‘stateless’ for reasons of tax avoidance. However, he also indicated that there will be no move on the rate currently paid:
“We are 100 percent committed to the 12.5 percent corporation tax rate. This will not change.”
It’s this low rate that has angered European politicians, such as former French president, Nicolas Sarkozy, who said throughout his tenancy that it was unfair, but it’s also known that most corporations pay much less than 12.5% already. And, just this month, Germany’s second-largest political party insisted that Ireland must raise its corporation tax rate, hinting that there may be a demand for Ireland to do so, in return for recapitulation of its banks. Taoiseach Enda Kenny was quick to rule out any such action, saying:
“We have no intention of raising our corporation tax rate.”
Welcomed by most
The worry for some is that corporation tax rate changes would lead to these big companies leaving Ireland for more ‘tax-friendly’ shores. However, IDA Ireland, the state agency tasked with bringing in foreign investments, said that the tax reforms would not have an impact on its ‘competitive position’. A spokesperson said:
“IDA Ireland’s main aim is to ensure that Ireland’s offering, be it through talent, infrastructure or taxation, is continuously enhanced and remains competitive internationally. For IDA Ireland, the stability of the 12.5 percent corporate tax rate is a vital part of Ireland’s offering to our foreign investors.”
Even the American Chamber of Commerce, which represents big corporations such as Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN), was equally dismissive that the new regime would change Ireland’s competitiveness when it comes to foreign investment.
Anna Scally, Chair of the American Chamber Taxation Group, welcomed the news too:
“Ireland’s corporate tax regime is open and transparent and the Irish Government has reaffirmed its commitment to maintaining a competitive corporate tax regime. We welcome that Ireland will continue to engage constructively and purposefully in discussion relating to international tax matters.’
Short on detail
Despite all the favorable reactions to the move, details from the Irish government about how the new tax regime will work are few and far between. The Department of Finance wouldn’t be drawn into a discussion of the reasons behind the measure or how it would be implemented, although it did say that it wasn’t as a result of U.S. pressure. Yet, Pearse Doherty, opposition finance spokesman for Sinn Féin was less than optimistic:
“This measure won’t deal with the ‘double Irish’. The ‘double Irish’ will continue to be an anomaly that exists within the Irish tax code.”
The loophole has supposedly saved Apple Inc. (NASDAQ:AAPL) tax on $44 billion of offshore income, angering U.S. politicians, such as Senators John McCain and Carl Levin, both of whom labelled Ireland a ‘tax haven’. John McCain said the move was ‘encouraging’ but was also eager to know how the plan will work:
“Important questions do remain, however, including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income from Ireland’s 12.5% corporate tax rate.”
So will it work?
It’s hard to believe that Apple Inc. (NASDAQ:AAPL) will be paying the full 12.5% corporate rate on approximately two-thirds of their global income from 2015 without reviewing their tax strategy – especially when you consider the fact that it’s estimated that the company currently pays an effective rate of 2% or less. And, as finance experts will be quick to point out, companies can still nominate any country they like as their tax residence, including other zero tax jurisdictions such as Bermuda. There’s nothing Ireland’s government can do can stop that happening.
So, will it really make any difference?