Closing tax loopholes ‘will benefit State’

If the OECD’s initiative on stamping out tax avoidance fails, then Ireland’s 12.5% corporate tax rate could be undermined as high tax countries take unilateral action, according to the head of tax policy at the OECD, Pascal Saint-Amans.

All OECD countries as well as the G20 have signed up for the Base Erosion and Profit Shifting (BEPS) programme, which aims to eliminate “double non-taxation” among multinational companies. Mr Saint-Amans, who was in Dublin for a taxation conference organised by the Irish Taxation Institute and the Harvard Kennedy School, said that if the BEPS project fails, then high tax countries might proceed with unilateral action and tax companies the difference between what they pay in their country and what companies pay in low corporate tax jurisdictions such as Ireland.

“However, if the BEPS project succeeds and companies have to pay tax in just one jurisdiction, then it could benefit a country like Ireland because of its low rate. People would be happier if they paid tax in Ireland, which has a lower rate, but is fully respectable and accepted worldwide, but the problem now is they don’t even pay it here because they are located in Bermuda.”

A policy document on how BEPS would work in practice is expected to be completed in the next 24 months. The problem of “double non-taxation” was highlighted during US Senate hearings in June into the tax affairs of Apple.

It emerged during this probe that the technology giant had routed billions of dollars in profits through Irish registered companies to entities in Bermuda, which were subject to zero tax rates. These companies were registered in Ireland, but were not tax resident in this country.

Finance Minister Michael Noonan announced in Tuesday’s budget that this loophole was being closed.

“What Ireland is doing is putting an end to these opportunities, which are in accordance with trends that the international community, including Ireland, are moving to. So it is a wise anticipation of what might happen. It doesn’t mean that Ireland was doing anything wrong, it just means that Ireland is now part of the solution.”

Mr Saint-Amans said the two biggest challenges facing the BEPS legislation was agreeing on where a company’s “economic substance” is located. For example is it where the goods are manufactured such as Ireland, or where the products are sold such as the bigger EU countries, he asked.

Moreover, a company’s “economic substance” is much harder to determine for firms that specialise in e-commerce, he added.