We've heard a lot over the last two weeks about the death of the ‘double Irish’ tax loophole and the effect that it will have on the Irish economy – but now, as the Summit gears up for its launch tomorrow, it seems that the tax avoidance tool could be used beyond the January 1st deadline.
The Sunday Business Post yesterday reported that major Dublin law firms are believed to be gearing up to register hundreds of Irish 'shelf companies' – a company that is registered but doesn't engage in any business – before the end of the year so that they can be sold to international firms after the loophole closes. Under the current legislation companies who are already registered in Ireland and companies who register before the end of 2014 can avail of the ‘double Irish’ until 2020.
There is a possibility that a slew of shelf companies may be registered before the end of the year in the hope that they can be sold to international firms at a later date. If a foreign firm purchases one of these shelf companies after the January 1st deadline has passed they could still save millions by using the ‘double Irish’ until 2020.
The Department of Finance issued a statement to Newstalk this lunchtime saying that it could not comment on the “individual tax planning strategies that tax practitioners are engaged in” but that each year’s Finance Bill includes “a range of anti-avoidance measures to combat such practices".
The current tax loophole has been used by companies like Apple and Google, allowing them to transfer royalty payments from their intellectual property to a firm in Ireland. They can then transfer this money to an Irish registered company that is tax-resident in a country with no corporate-income tax, meaning that the rate of tax paid is closer to 2% than 12.5%.
This is a legal way of transferring profits from high-tax countries to tax havens.
Speaking to Newstalk Breakfast on October 28, Jobs Minister Richard Bruton commented that he did not foresee a rush in firms registering in Ireland before the end of the year to avail of the current tax laws.
Playing cat and mouse
Ireland moved to close the loophole under pressure from the US and the OECD, but to combat the lost incentive, the Government has already announced plans to introduce a ‘knowledge development box’, similar to existing programmes in the UK and the Netherlands.
The details of this new arrangement have not been finalised, however the European Commission is currently examining the legality of this practice as there is a concern that these schemes can be used as another form of tax avoidance.
These tax systems offer lower rates on profits gained through the creation of new patents, with the intention that they will reward innovation and to attract high-value jobs. Under the current UK programme, firms who register profits gained through patented research pay just 10 percent corporation tax – less than half of the regular rate of 21 percent.
The issue is expected to be discussed by the British and German finance ministers at the G20 meeting in Brisbane, Australia, later this month.
