Double Irish tax loophole abolished

Ireland will close its controversial tax structure that allows large multinational firms to shift profits overseas to reduce liabilities. The so-called Double Irish tax scheme will be closed to new entrants next year and phased out by 2020.

The system exploits variations in tax residency rules for companies operating internationally. It comes amid the growing clamour for tax reform by the Organisation for Economic Co-operation and Development (OECD) and G20.

In future all companies registered in Ireland will have to pay their taxes in the country. But the country’s ultra-low 12.5 per cent corporation tax will stay.

"The 12.5 per cent tax rate never has been and never will be up for discussion," Irish finance minister Michael Noonan said. "The 12.5 per cent tax rate is settled policy. It will not change."

Ireland has come under growing pressure from the US, Europe and OECD, which are working on reform of international tax laws and treaties to clamp down on avoidance.

Under the Double Irish system it’s possible for companies to shift royalty payments for intellectual property to a firm in Ireland and then to an Irish-registered subsidiary based somewhere with no corporate income tax. In some cases the companies can cut their tax bill to as low as two per cent. High profile US technology and pharmaceutical companies have been the most obvious users of this scheme.

Accountants have supported the approach. Chartered Accountants Ireland said it backed moves to secure the corporation tax regime by re-aligning the approach to the taxation of multinationals.  

“The 12.5 per cent rate doesn’t mean a low tax take. For 2014, corporation tax makes up 11 per cent of all tax revenue – eight times as much as local property tax for example. That tax has to be secured above all else for future years” said Brian Keegan, the body’s director of taxation.