Irish lawmakers finalise new law expanding tax loophole

Irish lawmakers on Thursday debated new legislation that will close one tax incentive but expand another amid controversy over international corporate tax avoidance following an investigation into deals made by multinationals in Luxembourg. As part of the Finance Bill, Dublin would end the contested “Double Irish” system but a separate adjustment will allow companies to pay no corporate tax on intellectual property.

The new provision in Ireland would remove the current 80 percent cap on writing off income against money spent on acquiring intellectual property. The finance ministry said the changes will cost the exchequer an extra 27 million euros ($33.8 million) based on current usage of the system.

But minister for finance Michael Noonan said he hoped the move would encourage companies to establish their intellectual property in Ireland, meaning that amount could rise. In 2012, 249 companies used the scheme. Noonan last month announced the end from next year of the “Double Irish” system, which allows multinationals to transfer profits to tax havens.

Seamus Coffey, a lecturer in economics in Cork University, said he did not believe the provision would reach the scale of the “Double Irish”. “The Double Irish is based on the money (multinationals) earn, where this allowance is based on the money they spend.” “If it was a cap on the income or the profits it would be more significant because it could potentially be unlimited but because it’s a cap on an allowance, the company has to incur the cost first before it can claim the benefit,” he told AFP.

Coffey said a “knowledge patent box” planned by Ireland for next year – similar to the special tax regimes for intellectual property revenues used in different countries – would have more far-reaching implications. “The patent box is about the income and the cost and that’s potentially unlimited,” he said. The debate in Dublin coincided with Luxembourg coming under fire Thursday after leaked documents showed the tiny nation gave hundreds of global firms huge tax avoidance deals.

During Thursday’s debate on the new legislation in Ireland, which is expected to be enacted by the end of the year, opposition lawmakers accused the government of favouring the interest of multinationals. “We see supposedly gilt-edge reputable companies consciously organising their tax affairs so that they can avoid paying tax in this country,” Clare Daly, an independent, said in parliament.

“There is a direct link to that situation between an erosion of our public services. “If (corporations) even paid the effective corporation tax… this state would have two and a half billion extra to play around with in a year, more than enough to deal with those on the bottom,” she said.

Approximately one-quarter of Ireland’s gross domestic product (GDP) comes courtesy of US companies and their affiliates, according to Ireland’s Inward Development Agency. One of those companies, tech-giant Apple, is under investigation by the European Commission on whether its tax arrangements in Ireland amounted to illegal state aid, as the company reportedly paid as little as 2.0 percent tax.The country’s standard corporate tax rate is 12.5 percent.

During the Web Summit conference in Dublin this week, John Sculley, former Apple chief executive and president of PepsiCo, warned Ireland would not remain the favoured base for multinationals if tax did not remain competitive. “It is going to be a challenge to get as much enthusiasm from international companies to locate in Ireland if there is a tax advantage somewhere else,” he told reporters.