Ireland Said to Weigh Phasing Out Double Irish Tax Break
Ireland’s finance ministry officials are weighing phasing out a tax device used by multinational companies including Google Inc., according to a person with knowledge of the matter, as the European Union looks into the practice.
Ireland is considering whether to eliminate a technique known as the “Double Irish,” which allows companies to avoid paying corporate tax on much of their income, or phasing the tax break out over four or five years, said the person, who asked not to be named, as no final decision has been made.
Irish Finance Minister Michael Noonan is under pressure from the European Commission to end incentives which sweeten the nation’s 12.5 percent corporate tax rate as he prepares his Oct.14 annual budget speech. The Commission said today it asked for information from Ireland on tax residency rules earlier this year.
“The Commission has been gathering information on various tax practices in several member states,” Antoine Colombani, a spokesman for EU competition commissioner Joaquin Almunia, said in an e-mail response to questions. “The fact that we ask for information does not mean this will lead to a formal investigation.”
In a separate probe, European Union regulators criticized accords Apple Inc. (AAPL) reached with Ireland’s tax authorities, on suspicions that “employment considerations” trumped compliance with international tax rules. Both Apple and Ireland deny any wrongdoing.
One Company
“The state-aid investigation currently underway relates to one company only,” the Ministry said in an e-mail response to questions. “Ireland has and will continue to cooperate with this investigation. This involves exchange of information and face-to-face meetings to discuss details of the investigation. General discussions on taxation do not form part of these discussions.”
The finance ministry didn’t respond to a question about whether the abolition of the Double Irish is under consideration.
While Noonan moved last year to scrap a measure allowing companies registered in the country to be “stateless” in terms of tax residency, he left the Double Irish structure unchanged.
In the case of Google, the company routes its European sales through a subsidiary in Dublin. The unit in turn pays royalties to another Irish company for the rights to Google’s various patents.
Because the second unit is managed in Bermuda, it isn’t tax resident in Ireland and doesn’t owe Irish taxes. This results in the majority of Google’s worldwide profits avoiding tax anywhere in the world. Google declined to comment today.
Drug Companies
The Irish Times earlier reported today that Noonan will phase out the tax device over a period of years. Drug companies are lobbying the government to prolong the mechanism for more than four years, the newspaper reported, without citing anyone.
“While these loopholes could also be easily stamped out by changes to U.S. tax rules, Ireland looks set to pre-empt likely rule changes being formulated by the OECD,” said Dermot O’Leary, an economist at Goodbody Stockbrokers in Dublin, in a note today. “From a messaging point of view, the speech gives an opportunity to set out very clearly Ireland’s views on this issue, thus responding to some of the more damaging accusations that have been circling over recent months.”
