OECD gives cautious welcome to Knowledge Box tax scheme

THE OECD has signalled support for the Government’s plan to introduce a so-called “Knowledge Development Box”, but warned that the devil would be in the detail.

Pascal Saint-Amans, the director of the Centre for Tax Policy and Administration at the Paris-based Organisation for Economic Cooperation and Development (OECD), told the Irish Independent it was “common sense” for the Government to wait for the conclusion of an examination of patent box schemes elsewhere by Europe before moving.

Ahead of a tax conference he is due to address in Dublin today, Mr Saint-Amans said the closure of the Double Irish was significant, “but not a revolution.”

Asked if it was problematic for the Government to be introducing a tax-break scheme for some multinationals while simultaneously shutting off a notorious tax avoidance strategy, Mr Saint-Amans said: “No, I don’t see this as a case of ‘we give from one hand what we’ve taken from the other’.

“To the extent that patent boxes are being revised, reviewed, by the OECD and EU as regards the criteria which is acceptable and which is not, announcing that there will be a patent box compliant with what the international community will come up with is a realignment between substance and tax,” he told this newspaper.

“I think this is something which is fine. The devil will be in the details as to what can be done.” Last December, European finance ministers ordered a review of all patent boxes in the EU. That includes schemes in Belgium, Cyprus, Spain, France, Hungary, Luxembourg, Malta, The Netherlands, Portugal, and UK.

The UK has operated a patent box regime since April last year, with a rate of 10pc on profits derived from products that incorporate patents.

Other countries with similar schemes include Luxembourg, with a headline rate at 5.76pc, Belgium at 6.8pc and the Netherlands at 5pc.

The Department of Finance said the public consultation for the Knowledge Development Box will begin before the end of the year with no decisions on rates before this.

Mr Saint-Amans said the fact that countries want to promote innovation in a way which is not just about attracting patents, but also activity, “is something which is accepted and promoted”.

“It’s just that it needs to be done in an orderly manner. That’s why the EU are working hard on this,” he said.

And he said the decision by the Government to wait for international consensus on the criteria for patent boxes “just makes common sense.”

The New York Times this week published a scathing editorial criticising the Government for announcing the Knowledge Development Box while scrapping the Double Irish.

The newspaper claimed Ireland appeared “uninterested in true reform” under a headline, ‘Ireland, Still Addicted to Tax Breaks’.

Mr Saint-Amans declined to comment on the editorial, or the potential reputational damage caused. But he again praised the Government for scrapping the Double Irish.

“It’s just a significant message sent out that Ireland is taking the changes that are occurring in the rest of the world seriously, and wants to clearly state that it’s a responsible State that has understood that double non-taxation is something not acceptable,” he said. “It’s a timely move.”

Meanwhile, the tax chief said the Base Erosion and Profit Shifting (BEPS) project, which he is spearheading, still had a difficult agenda ahead.

Seven measures were announced last month, which, if implemented by member countries, could stop companies from employing many commonly-used practices to shift profits into tax havens.

The measures form part of a larger programme that will conclude next year with further actions.

But only then will countries look at enshrining the results into law. “I think it is extremely difficult. There is no easy catch there, except that there is agreement there that putting an end to the double non-taxation is a commonly shared goal by all the countries,” he said.

“We are hopeful that we can make progress and deliver on the 2015 actions. Is there any particular area which would be more difficult than others? No.”

Asked if he had any concerns about the will of the United States to implement the measures amid business unease there, he added: “The US is in a very interesting situation, to the extent that it badly suffers from BEPS.

“Double non-taxation is very important there, and they all agree that they need to do a tax policy reform and it’s difficult to achieve because of the internal policy issues. “There is no bi-partisan agreement on how to do reform.

“The fact that the US may not move immediately in terms of tax policy reform, I think everyone is aware of that.

“It doesn’t change the fact that other countries want to move in a coordinated agreement, and that’s what matters. Would the US block that move and take the risk that countries would move unilaterally without any form of coordination? I don’t think so.”

The Obama administration has already moved to combat so-called tax inversions, in which a corporation avoids US taxes by buying or setting up a foreign company in a country and then moving its tax domicile to that country.

The crackdown has already led to US pharmaceutical giant AbbVie scrapping its planned $55bn (€43bn) takeover of rival Shire, both of which have operations here.

Mr Saint-Amans, together with Finance Minister Michael Noonan, will speak at the 9th meeting of the OECD’s Forum on Tax Administration today and tomorrow in Dublin Castle, with the heads of tax administrations attending from 38 OECD countries. The agenda includes the implementation challenges of BEPS, ways to improve compliance as well as discussions around the automatic exchange of information.