Noonan Asserts Ireland’s Direction On Tax Policy

“The issue of substance and taxation is, and always will be, a core column of the Irish taxation system,” Michael Noonan, Ireland’s Finance Minister, said at his Department’s Tax Policy Conference on October 21, 2014, underscoring that Ireland’s strategy is to play fair but play to win.

Beginning by discussing the recent response from the US Administration to counter corporate tax inversions, Noonan said: “While my understanding is that such corporate inversions are entirely driven by push, rather than pull, factors (i.e. tax issues in other jurisdictions, rather than [in] Ireland), they nevertheless can create negative perceptions. Let me be crystal clear, Ireland only wants foreign direct investment with real jobs and real substance.”

“The Road Map released with the Budget also sets out a number of enhancements to our regime. These included enhancements to the research and development regime, changes to our Special Assignee Programme, and increased resources for the Revenue Commissioner’s competent authority function” to deal with transfer pricing matters.

“I have also signaled the intention to introduce a Knowledge Development Box in Budget 2016, however, as I stated it will be necessary to ensure that such a regime meets with the standards to be agreed both by the OECD and the EU,” he said, alluding to controversy surrounding the patent box regimes that Ireland’s regime would mirror.

Also discussed by Noonan was the announcement of a pre-emptive change to Irish company tax residency rules to prevent companies from using Double Irish arrangements from 2020 at the latest. The Road Map noted that a change to Irish rules is needed, as Ireland’s residency rules have “not kept pace with international tax developments.”

The Double Irish arrangement has been used to enable a US parent to exploit intellectual property (IP) rights owned by a subsidiary offshore without that income becoming taxable in the US (unless the profits are remitted). The structure includes two Irish companies, one incorporated in a lower tax territory, which is deemed not to be tax resident in Ireland, while another Irish company, responsible for central management and control, is based and taxed in Ireland. Under US and Irish rules, profits accruing from the IP received by the subsidiary offshore are neither taxable in Ireland nor in the United States.

Ireland will amend its rules by strengthening its taxing rights to prevent such arrangements from 2015, with a five-year transitional period for companies already with operations in Ireland. On these plans, Noonan said: “I do not claim that this change will bring an end to improper international tax planning. For that to happen, coordinated action by many countries working together will be required. But it will mean an end to the so-called ‘Double Irish’ tax structure. I would urge other countries to follow our lead in relation to the closure of these two-tier structures.”

Noonan closed by again ruling out changes to the Irish corporate tax rate: “Evidenced based policy making is central to the thinking within my Department. We have, for many years, stressed the importance of the 12.5 percent rate and have stood firm over its continued use. The economic evidence to support the importance of this rate, and the importance of the Foreign Direct Investment sector to Ireland, has now been clearly laid out as part of our economic analysis,” he said.