The Government will phase out the "double Irish" tax loophole over the next five years for companies based in Ireland and from January for new firms.
Speaking to journalists following the release of the budget, Finance Minister Michael Noonan said the decision to scrap the tax mechanism on a unilateral basis was prompted by the need to create certainty for investors.
The OECD has under-taken the base erosion and profit-shifting project which is aimed at eliminating aggressive tax planning by multinationals. The double Irish was a vital cog in this type of tax planning that helped the tech giant Apple reduce its effective corporate tax rate to 2%.
“Everything was leading to uncertainty,” said Mr Noonan. “We couldn’t say to investors with certainty that the same [corporate tax] regime would be here in four years time. So we created certainty. So if you invest in Ireland you know where you stand and there are advantages in being first mover.”
The double Irish operated through multinationals incorporating companies in Ireland that are not tax resident here. Profits from global royalty revenues are routed through this firm to another Irish-registered firm which is tax resident in a haven where there is a zero tax rate on royalties.
All new companies that incorporate in Ireland from January will have to be tax resident here. For existing multinationals, they will have to comply with the new rules over a five-year timeframe.
Mr Noonan also said the Government intended to introduce a “patent box” to make the corporate tax regime more competitive. The patent box would have a special low tax offering for firms looking to locate research and development activities in Ireland.
He noted the UK had a 10% tax rate on its patent box, the Netherlands had an 8% rate, and Spain a 5% rate. The EU Commission is looking into the compatibility of patent boxes with EU law. Once this review has been completed, Ireland would finalise the details on its offering, he said.
Ireland could then stand to gain as revenues from royalties and patents are routed away from tax havens, said Mr Noonan.
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