Analysis: ‘Inversions’ again haunt Ireland’s tax regime

When Finance Minister Michael Noonan took action at the end of 2014 to abolish the much-maligned ‘double Irish’ tax loophole, he said it would give certainty to investors in relation to the country’s tax arrangements.

The measures announced to the Dáil as part of his budget speech would “attract and retain” companies, he predicted.

On both fronts he appears to have been proven correct.

The intervening 15 months have shown if there’s one certainty regarding the Irish corporate tax regime, it is that US multinationals covet it as much as ever.

Less than a month into the new year, the controversy has re-erupted, as Johnson Controls seeks a $20bn (€18.43bn) merger with Cork-headquartered fire and security specialist Tyco. The proposed deal would move the US firm’s tax domicile to Ireland.

The deal would also yield tax savings of at least $150m a year for the new entity, the companies said.

Democratic presidential candidate Hillary Clinton vowed to put an end to such deals if she is voted into the White House later this year.

Her plan, she said, “would block deals like Johnson Controls and Tyco, and place an exit tax on corporations that leave the country to lower their tax bill”.

But while the upset and anger across the Atlantic is understandable, it could also be argued that such deals are in fact a healthy serving of just desserts for US authorities who have failed to adequately reform their own corporate tax system.

Large companies tend not to need much encouragement to reduce their tax bill, yet the US corporate tax rate of 35% provides them with plenty. 

Tougher rules introduced by the US treasury in September 2014 and again last November aimed to stem the flow of inversions but appear to have had little effect so far.

Separately, the OECD has also sought to curtail corporates’ aggressive tax planning ability, while European Commission proposals released today are expected to hoist further change upon Irish authorities.

From an Irish perspective, these deals place more unwanted attention on the Irish tax regime.

Tax inversions have in recent years been driven by pharmaceutical firms and because many of the largest firms have their European head offices based in Munster, the focus has fallen on some of the largest employers in Cork.

Last October, another mega pharma deal — the tie up between Botox-maker Allergan and Pfizer — first sparked critical comments from both sides of the White House presidential race.

A Department of Finance spokesman said yesterday that Ireland was not the only country cited as an inversion destination, adding “we only have and want real substantive Foreign Direct Investment — the kind that brings real jobs and investment into Ireland”.

“With regard to some of the recent mergers and acquisitions into Ireland, it is encouraging to see substantial Irish companies being involved in such high-profile transactions. 

“However, in relation to transactions that may not involve real substance in terms of jobs and investment in the Irish economy, Ireland does not encourage such transactions,” the spokesman said.

Inversions, the department also argued, are motivated primarily by US tax issues and as such any steps to address those issues would be welcomed. 

Whatever the cause, where the double Irish was once the focal point of international scrutiny, inversion deals have undoubtedly taken its place.


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