Ireland bows down to international pressure and mulls tax reform program

By Quantum Capital Fund

Following many attempts by the European Union to initiate tax reforms which would discourage multinational corporations from using European countries as a base for their subsidiaries, Ireland is considering a program which would finally bring an end to the practice of Double Irish.

Technology website cnet.com cites a weekend report in the Sunday Business Post which points out that, in the face of mounting international criticism, the Irish government is considering ways to phase out the Double Irish taxation arrangement. The technique dramatically reduces a company's tax debt by funneling profits through two linked Irish subsidiaries. The report did not indicate what specific changes might be under consideration.

Wikipedia describes the practice of Double Irish as a process involving payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country. It relies on the fact that Irish tax law does not include US transfer pricing rules. Specifically, Ireland uses territorial taxation, and hence does not levy taxes on income booked at subsidiaries of Irish companies that are outside of the state.

The practice was established in the late 1980s, and many US based technology companies such as Facebook, Microsoft and Hewlett Packard take advantage of this arrangement.

However, Apple has been the highest profile victim of this after the US Senate questioned the company at length regarding its practices. If Ireland can come up with a workable solution to its current programme; the effects of this will be far reaching. A major reason that multinational companies base their subsidiaries in Ireland is because it is considered a tax haven. This has become a major draw card for the country. By implementing laws which eradicate loopholes, the country is closing itself off to potential future business development in the country. This business development goes far beyond merely setting up a subsidiary in the country as multinational corporations contribute significantly to the Irish economy in terms of skills development and training as well as job creation.

But change is necessary. By forcing multinational companies to pay their fair share in taxes, a major cash injection will be experienced in relevant global economies. This cash injection can be used to implement skills development programs as well as job creation programs in markets, which are struggling to battle serious challenges that affect them.