Taoiseach faces Brussels scrutiny over tax regime

Taoiseach Enda Kenny will find himself at the centre of a debate on tax avoidance by multinationals during today’s EU summit in Brussels.

The timing could not have been worse for Mr Kenny, with the US Congress decrying Ireland as a tax haven amid claims by Apple that a deal let them pay a minuscule amount of tax on global earnings.

Britain put the issue centre stage when it discovered Starbucks, Google, and others were using tax law loopholes to move their profits through Ireland and off to safe havens.

However, allegations by Apple that it did a deal with Ireland to pay less than 0.05% on earnings of over €22bn brings the issue into new territory, as Ireland’s defence has always been that its system is open and transparent and treats every company the same, unlike many other EU countries.

Ireland, in its role as EU president, has overseen some notable successes on tax over the past few months, from getting agreement on financial transaction tax discussions, to a mandate for savings tax negotiations with Switzerland and are pushing on the Vat fraud directive.

The Government has also backed the OECD, the Paris-based body funded by developed countries that is working on the issue of tax avoidance and aggressive tax arrangements.

An Irish source said the tax issue involved a chain of issues, including the fact that multinationals act in this manner because the US tax code makes it expensive for them to repatriate profits.

British prime minister David Cameron has the matter high on the agenda for next month’s G8 meeting in the North.

So far, 17 member states have said they will join pilot scheme to automatically exchange tax information, and Mr Cameron is looking for EU leaders to endorse it at today’s summit.

In Brussels yesterday, Eamon Gilmore flatly repudiated Apple’s evidence that “for the last 10 years, this special corporate income tax rate has been 2%”.

“Ireland does not negotiate any special tax rate deals with any companies,” said Mr Gilmore. “We do not have any special low rate for multi national companies... In our tax law there is no provision for special tax deals with individual companies.”

He added that the effective rate of 12.5% was close to the rate levied, in contrast with other countries.

British sources said that, with the US introducing a Foreign Account Tax compliance act, now offered a good opportunity to push for a global clamp down on tax avoidance.

“We hope that the EU will help create a global standard,” said a source, adding that pursuing tax issues by normal EU channels has been very difficult.

However, it is difficult to say if there will be any blame aimed at Ireland, as the Dutch tax regime is central to many multinationals moving profits to non-tax areas such as Bermuda, and British territories including the Cayman Islands and Jersey facilitate tax-dodging as well.