Ireland changes tax rules

Posted on 14 Feb 2018
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Ireland’s government has bowed to international pressure over aggressive tax planning and will make major changes to the country’s corporation tax structure, including the abolition of the controversial so-called ‘double Irish’ scheme which has allowed US multinationals such as Apple and Google to shave billions of dollars off their tax bills say Harris & Co accountants Northampton #accountantsnorthampton

In his Budget speech yesterday Irish finance minister Michael Noonan said this option would now no longer be available, as the Irish government was changing its residency rules to require all companies registered in Ireland to also be tax resident.

This brings Irish law in line with US and UK rules, and will prevent the current option used by technology giants such as Google and Apple whereby a multinational can channel untaxed revenues to an Irish subsidiary, which then pays the money to another company registered in Ireland that is tax resident elsewhere, usually in a tax haven such as Bermuda.

The change will take effect from 1 January 2015 for new companies, while for existing companies, there will be provision for a transition period until the end of 2020.

Noonan acknowledged that the growing criticism of aggressive tax planning by multinationals by governments around the world, coupled with the OECD’s scrutiny of schemes which exploit mismatches in tax legislation via its Base Erosion and Profit Shifting project, meant schemes such as the ‘double Irish’ risked damaging the country’s reputation.

Noonan said:

‘This proactive change will not bring an end to international tax planning; that requires co-ordinated action by all countries. By taking action now and making this change as part of a broader reform of our corporate tax system, we are giving certainty to investors about corporate tax in Ireland for the next decade.’

Google declined on Tuesday to comment on the specifics of the double-Irish technique, but said in a statement:

‘As we’ve always said, it’s for governments to decide the law and for companies to comply with it. We’re deeply committed to Ireland and will work to implement these changes as they become law.’

European Commission reaction

Asked about Ireland’s decision, Algirdas Semeta, the European Commissioner for taxation, said the Commission ‘will have to look at the details and how it will work in practice. But the intention is a very good one.’

Outlining a road map for Ireland’s corporation tax strategy, which he said was designed ‘to secure Ireland’s place as the destination for the best and most successful companies in the world,’ Noonan made clear that the country’s current tax rate of 12.5% remains at the heart of this.

Noonan stated:

‘The government has successfully protected the 12.5% tax rate in recent years. The 12.5% tax rate never has been and never will be up for discussion. The 12.5% tax rate is settled policy. It will not change.’

Other tax reliefs

Noonan also announced a raft of proposals to ensure Ireland remains attractive to foreign investment.

These include improving Ireland’s R&D regime - currently the 25% tax credit applies to the amount of qualifying R&D expenditure incurred by a company in a given year that is in excess of the amount spent in 2003, but this base year restriction will be removed from 1 January 2015.

Existing intangible asset tax provisions will be enhanced, by removing the 80% restriction on aggregate allowances (and any interest expense incurred on borrowings to fund the expenditure). The special assignee relief programme (SARP) is being extended for a further three years until the end of 2017 and the upper salary threshold is being removed.

The residency requirement is being amended to only require Irish residency and the exclusion of work abroad is also removed. The requirement to have been employed abroad by the employer is being reduced to six months.

The three year corporation tax relief for start-up companies is being extended to new business start-ups in 2015 and a review of the operation of this measure will take place in 2015.

In addition, there are plans to extend the accelerated capital allowances scheme for energy efficient equipment for a further three years. The Seed Capital Scheme is being rebranded as Start-Up Relief for Entrepreneurs (SURE) and being extended to individuals who have been unemployed up to two years.

Noonan said that companies now invest as much or more in knowledge-based capital as they do in physical capital such as plant and machinery. Consequently, the Irish government wants to introduce a ‘Knowledge Development Box’ along the lines of the UK’s patent and innovation

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