The Irish government has revealed plans to close a much criticised tax loophole nicknamed the “Double-Irish”, which lets major international corporations such as Apple, Google and Facebook pay surprisingly low rates of corporation tax.
The plans, announced by Ireland’s finance minister Michael Noonan in the government's budget today, come amid mounting pressure from Europe and countries of the G20.
From January 2015, residency rules will be changed so that new companies registered in Ireland must also be a tax resident.
Companies already registered will be given until the end of 2020 to comply with the new law during a “transition period.”
Noonan said the government will look to implement a new tax incentive from next year, which will allow companies to pay a lower rate of corporate tax on profits derived from exploiting intellectual property in Ireland.
The “Knowledge Development Box” will operate in a similar way to the UK’s Patent Box, which allows companies to apply for a lower corporation tax rate on profits from patented inventions and innovations.
The EU is investigating tax deals which allow multinational firms to reduce the amount of tax they pay by headquartering their European business in countries such as Ireland, Luxembourg and the Netherlands.
Apple is the most high-profile target of Brussel’s crackdown so far, however other tech firms such as Google, Facebook and Microsoft along with a number of pharmaceutical firms are also thought to have benefited from Ireland’s favourable tax regime.
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 and through the Base Erosion and Profit Shifting project they will come to an end over time.
The so called 'Double Irish' is one of many such schemes. I am abolishing the ability of companies to use the 'Double Irish' by changing our residency rules to require all companies registered in Ireland to also be tax resident. This legal change will take effect from the 1st of January 2015 for new companies. For existing companies, there will be provision for a transition period until the end of 2020.
Companies now invest as much or more in knowledge-based capital as they do in physical capital such as plant and machinery. Consequently, I intend putting in place a 'Knowledge Development Box' along the lines of patent and innovation boxes which have existed for many years in countries that compete with us for foreign direct investment. I am launching a public consultation process to gather views on how the Knowledge Development Box should operate and I plan to legislate for it in next year's Finance Bill or as soon as EU and OECD discussions conclude.