Ireland, accused of giving tax breaks to multinationals, plans an even lower rate
Ireland, whose corporate tax rate of 12.5 percent is already one of the lowest in the developed world, said it would cut that rate in half for a new tax category — one covering revenue pegged to companies’ patents and other intellectual property.
The Irish government, long criticized by other European countries and the United States for its friendly tax treatment of multinational giants like Apple and Google, on Tuesday announced a move that seemed likely to further incense its critics.
Ireland, whose corporate tax rate of 12.5 percent is already one of the lowest in the developed world, said it would cut that rate in half for a new tax category — one covering revenue pegged to companies’ patents and other intellectual property.
Companies that could be poised to benefit include Apple, Google, Facebook and Microsoft — all of which have significant operations in Ireland and have troves of intellectual property that might be eligible for the new tax treatment.
Google and Facebook declined to comment Tuesday, and Apple and Microsoft did not immediately respond to requests for comment.
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The new 6.25 percent rate would apply to a tax category that Ireland announced last year, which it calls a “knowledge-development box,” and would be put into effect early next year.
The category is meant to provide tax breaks for revenue and royalties derived from intellectual property held in a specific country.
Other countries, including Britain, Luxembourg and the Netherlands, have created similar tax categories for intellectual property, often in the hope of enticing overseas companies to set up shop in their territories.
But critics contend that the royalties paid on intellectual property under such arrangements often do not adequately reflect where the inventions were made or where the innovations generate the most revenue.
Michael Noonan, Ireland’s finance minister, who announced the new plan Tuesday, described the knowledge box and the low rate as a “significant enhancement” to Ireland’s corporate-tax system.
“This puts Ireland in the unique position to offer long-term certainty to industries planning their research and development investments,” he said. “The initiative adds a further dimension to our best-in-class corporation-tax offerings.”
James Stewart, an associate professor of finance at Trinity College, Dublin, said Ireland’s new approach would probably change the tax strategies of multinational companies — though not for the better.
“This is complex, and multinationals love complexity,” he said, “because it allows them to develop tax-avoidance strategies. The last thing they want is simplicity.”
Over the past two decades, many U.S. companies — tech giants like Facebook and Google, as well as nontech companies like the drugmaker Pfizer — have established sizable operations in Ireland, primarily to take advantage of the country’s low-tax tradition.
Ireland’s corporate-tax rates compare with a rate of 35 percent, before deductions, in the United States.
But critics say the bigger issue lies in the special tax deals that Ireland made to entice multinational companies to set up operations there. Such deals have led to criticism from some global policymakers, who argue that companies are not paying enough tax.
Ireland is by no means the only European country whose corporate-tax strategies have come under scrutiny. The European Union has been investigating the tax arrangements between big multinational companies in Luxembourg and the Netherlands, among other places.
For many lawmakers and regulators in the 28-nation EU, particularly in the countries severely affected by the financial crisis, the ability of some companies to move a large share of their European revenue to low-tax member states like Ireland has been viewed as unfair competition and as an encouragement of tax-shopping by multinational corporations.
In countries including France, which is perceived by some industry executives as taking a harsh line against U.S. tech companies, politicians have called on companies like Google to pay taxes on their local operations, instead of only in Ireland, where the company has its European headquarters.
And in May, Amazon, the e-commerce giant, announced it would pay taxes in a number of European countries where it has large operations, instead of funneling nearly all of its sales through Luxembourg, which has comparatively low taxes.
U.S. congressional investigators said in 2013 that Apple had created a web of international subsidiaries, some in Ireland, to move at least $74 billion from 2009 to 2012 beyond the reach of the Internal Revenue Service. Apple has denied wrongdoing and says that it pays appropriate levels of tax in the countries where it operates.
