Ireland to close 'Double Irish' tax loophole in 2015, firms currently using tactic get grace period
As expected, Ireland's Finance Minister Michael Noonan on Tuesday announced a planned end to tax breaks fostering the so-called "Double Irish" accounting scheme, which has been used by multinational corporations like Apple to save billions of dollars.
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.
According to the New York Times, Ireland will close the loophole by 2015 for new companies, while those currently leveraging the strategy will have until 2020 to find alternate means of accounting. In other words corporations like Apple and Google will have until December 2020 to find another country with favorable tax provisions.
"Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries," Noonan said, addressing the Irish Parliament. "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."
At its most basic level, the "Double Irish" provision allows companies with operations in Ireland to route profits to another Irish subsidiary, which has tax residency in a tax-free nation. Companies like Apple and Google assign patents to these subsidiaries, allowing the free flow of profit on royalties to tax havens such as the Caribbean.
In Apple's case, another fold is introduced when international profits are piped through another subsidiary in the Netherlands before being routed through the Irish subsidiary. Ireland and the Netherlands hold treaties that allow certain EU states to pass funds across borders tax free. This added step begets the name "Double Irish with a Dutch Sandwich."
Source: European Commission
Prior to today's announcement, Ireland was being pressured by the European Commission to end the "Double Irish," saying that it found the country's tax arrangements to be the equivalent of illegal state aid.
However, along with today's announcement of a slow tax loophole phase-out, Ireland revealed an upcoming plan called the Knowledge Development Box, which is designed to lower taxes in a bid to retain at least a few companies thinking about leaving. The practice of employing "patent boxes" is well known in Europe and allows companies based in participating countries to apply for lower rates on profits resulting from certain designated intellectual property. Ireland did not reveal the actual rates for its patent box, but Noonan said to expect a "low, competitive and sustainable tax rate."
EU states have long courted multinational companies to set up bases of operation within their borders to drive job creation and spur on economic growth. Ireland became a hot bed of activity for U.S. tech companies looking to escape high corporate taxes levied by their home country after the "Double Irish" accounting principle was discovered. According to The Times, Ireland claimed some 161,000 employees worked at 1,100 international companies in 2013, with half of those corporations coming from America and about 60 percent of all employees working in the tech industry.
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.According to the New York Times, Ireland will close the loophole by 2015 for new companies, while those currently leveraging the strategy will have until 2020 to find alternate means of accounting. In other words corporations like Apple and Google will have until December 2020 to find another country with favorable tax provisions.
"Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries," Noonan said, addressing the Irish Parliament. "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."
At its most basic level, the "Double Irish" provision allows companies with operations in Ireland to route profits to another Irish subsidiary, which has tax residency in a tax-free nation. Companies like Apple and Google assign patents to these subsidiaries, allowing the free flow of profit on royalties to tax havens such as the Caribbean.
In Apple's case, another fold is introduced when international profits are piped through another subsidiary in the Netherlands before being routed through the Irish subsidiary. Ireland and the Netherlands hold treaties that allow certain EU states to pass funds across borders tax free. This added step begets the name "Double Irish with a Dutch Sandwich."
Source: European CommissionPrior to today's announcement, Ireland was being pressured by the European Commission to end the "Double Irish," saying that it found the country's tax arrangements to be the equivalent of illegal state aid.
However, along with today's announcement of a slow tax loophole phase-out, Ireland revealed an upcoming plan called the Knowledge Development Box, which is designed to lower taxes in a bid to retain at least a few companies thinking about leaving. The practice of employing "patent boxes" is well known in Europe and allows companies based in participating countries to apply for lower rates on profits resulting from certain designated intellectual property. Ireland did not reveal the actual rates for its patent box, but Noonan said to expect a "low, competitive and sustainable tax rate."
EU states have long courted multinational companies to set up bases of operation within their borders to drive job creation and spur on economic growth. Ireland became a hot bed of activity for U.S. tech companies looking to escape high corporate taxes levied by their home country after the "Double Irish" accounting principle was discovered. According to The Times, Ireland claimed some 161,000 employees worked at 1,100 international companies in 2013, with half of those corporations coming from America and about 60 percent of all employees working in the tech industry.
Comments
Note to self in 2020. "Sell AAPL"
Once again I have to pop in to point out that tax rates in Ireland will still be low. Just not 2%.
If they leave ( and where to?) it will be good riddance.
If they leave ( and where to?) it will be good riddance.
Luxembourg.
Why? Even if they pay 12.5% on "worldwide income" there will be little effect on their ever increasing cash. Unless they mess up some other way. It doesn't affect financial reports since that's all pre tax profits.
Irish politics must be corrupt and in much the same way as Seattle, where I lived until last year. The city is run of, by, and for a few powerful special interests, including downtown real estate. I suspect that's why Amazon is located there.
Were I an Irish citizen, I'd be voting out incumbents and voting down taxes.
Luxembourg is being investigated by the EU, and has a higher corporate tax rate. At least if you ignore it's sweet heart deals. And it's VAT is under threat too.
All EU countries are going to comply with stricter enforcement.
Why would Ireland risk losing billions in wage taxes and thousands of jobs. In any case this law was drafted in Germany or Brussels and rubber stamped in Ireland. It's a compromise.
The six years is to allow the EU to clamp down on all corporate malfeasance.
I am predicting that Apple will have found the perfect replacement for Ireland somewhere in Asia.
There's the equivalent of sheep stealing going on. Country X in the EU gives corporations, wherever they are, a tax break for pretending all the European business its doing takes place there. Country X reaps a tax bonanza that's so great it can collect more at a 2% rather than other countries do at 15%.
We need a diversity of taxes because making any one kind of tax high distorts the economy. Until recently, I lived in Washington state, whose high sales tax meant people did their best to evade it. But when they evade, money flows out of the state rather than provide for services.
One of those diverse taxes needs to a tax on corporations. But when a company like Apple makes perhaps 95% of its income in other European countries but pays perhaps 95% of its taxes in Ireland, that sucks money out of some countries into others.
Europe (and the U.S.) needs to come up with a way to tax income only in the country where it is earned and no where else. That'd return the money people in a country are paying for goods and services to that country.
Note to self in 2020. "Sell AAPL"
Note to AAPL: Travel to a new country - Find new tax haven in 2019 as they spring up to fill the gap Ireland is leaving.
Can't be in the EU.
The money isn't "earned" nor is value added where goods are sold. That's a recipe to destroy small nations and enrich bigger nation since bigger nations have bigger markets.
Taxes should apply where value is added.
Funny enough that irelands law admitted that. Since it treats a company as being domiciled where it's HQ is. The loophole was that the US sees Apple International as being based in Ireland because that's where Apple claims it is incorporated. If the US took irelands lead and said you are taxed where your managers are based the US could claim all apples international tax. But it doesn't. It's all bluster.
Note to AAPL: Travel to a new country - Find new tax haven in 2019 as they spring up to fill the gap Ireland is leaving.
I hear the Carribean is nice...
The import business probably can go anywhere unless that incurs fees. But that's not a notable employer.
Why isn't Bono apologizing for this? Oh he benefits from it too.
Pazuzu, you have a pretty disturbing and sick fetish with Bono. You're still traumatized over a free album? Seek some help, seriously. There must be some other hobby you can find beyond trolling.
2020 is a lifetime away. What'll we be on -- iPhone 11? One I can fold and put in my pocket?
Are you predicting the return of the flip phone by 2020?