Addressing the Oireachtas sub-committee on global taxation yesterday, Jim Stewart, associate professor in finance at Trinity College Dublin, said that existing tax residency rules, for multinational firms, are “extremely ambiguous” and suggested that where a company is legally incorporated should equate to where it is controlled.
However, Cora O’Brien, policy director at the Irish Tax Institute, told the committee that just because a foreign multinational is legally entitled to be incorporated in a country such as Ireland does not mean that it is taxed on all of its global profits there.
She noted that it is a fact — under Irish tax laws — that income generated in other jurisdictions cannot be taxed here just because a multinational may be incorporated in Ireland.
“We can’t tax income that does not belong to us, or is not attributable to us,” Ms O’Brien said.
“It [the multinational] is only liable to be taxed in Ireland on the activities that are subject to Irish tax under rules recognised and accepted not just in Ireland, but by other countries internationally, and the OECD,” she said.
“Ireland’s residence rules have been in place since 1922, would not be regarded as being unusual and would be consistent with many international countries and, indeed, the model OECD treaties,” she added.
However, Mr Stewart countered that incorporation rules are not fact, but just the opinion of the Revenue Commissioners.
“A global company based in Ireland, that is US in origin and US-owned could have operations in 20 different countries and derive its sales and income from 70 countries worldwide. Incorporation in Ireland does not automatically mean tax residency in Ireland and does not mean entitlement to the profits from those 70 countries. Where a company is not Irish tax resident, Ireland can only legally lay claim to the tax that arises from relevant activity in Ireland,” Ms O’Brien said.
Mr Stewart also backed claims that Ireland’s “effective rate of tax” is closer to 2% than the 11% claimed by Government; something which Ms O’Brien disagreed with. She told yesterday’s committee the majority of studies actually show the effective corporate tax rate here is “generally very close to 12.5%, as there are few deductions and reliefs within our corporate tax regime”.
She said the effective tax rate question is part of the wider debate on international tax issues.
“There are many strands to Ireland’s overall tax strategy — from regime to rate and reputation. They must all receive the focus and attention which is warranted,” she said.