Ireland’s finance minister Michael Noonan sounded the death knell for the controversial “Double Irish” tax scheme as the scheme will no longer be available to companies establishing operations in Ireland from January 2015.

The G20 group of powerful economies has commissioned the Organization for Economic Cooperation and Development to produce a package of tax reforms to rein in multinationals.

Ireland To Abolish "Double Irish" Tax Scheme

“Double Irish” tax scheme

Several giants including Apple Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT) employ an accounting method called “Double Irish with a Dutch Sandwich” to evade taxes. The method leverages multiple international laws to avoid taxes. Apple Sales International has never filed financial returns in Dublin. That said, over the past five years, Apple has reported over $100 billion in profits, but the Irish arm of Apple has paid less than 0.05% in taxes.

Noonan had earlier indicated that he planned to close the loophole in the Irish tax code.

To take advantage of the “Double Irish” method, large firms set up two Irish companies, one to own the intellectual property rights and another to license those rights and keep profits low. This arrangement would facilitate the second company to be taxed at a modest 12.5%, or nearly a third of the 35% international tax rate imposed by the U.S. government.

Delivering his Budget 2015 speech, Noonan laid out what he called a roadmap to Ireland’s tax system aimed at attracting foreign direct investment.

To be phased out by 2020

Outlining his roadmap in his fourth budget, the finance minister said he is abolishing the ability of companies to use the “Double Irish” tax scheme by changing the residency rules to require all companies registered in Ireland to also be tax residents. While the new laws will take effect from January 1, 2015 for new companies, he said for existing companies, there will be provision for a transition period until the end of 2020.

The finance minister, however, reiterated that there will be no change to the country’s headline 12.5% rate for corporate taxes.

The double Irish loophole facilitates U.S. companies in trimming 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.

Besides the abolition of the “Double Irish” change, Noonan announced a roadmap “to secure Ireland’s place as the destination for the best and most successful companies in the world”. The initiative would include the introduction of a “Knowledge Development Box” which the finance minister said would be similar to the patent and innovation boxes available in other countries.