The notion just two years ago that the Double Irish tax avoidance scheme would be axed in the short-term would have been viewed as risible but just as the economy is at last recovering from a momentous crash, conventional wisdom has been shown to be wrong again.
On Tuesday as part of the Budget 2015 measures, Michael Noonan, finance minister, announced: "I am abolishing the ability of companies to use the 'Double Irish' by changing our residency rules to require all companies registered in Ireland to also be tax resident. This legal change will take effect from the 1st of January 2015 for new companies. For existing companies, there will be provision for a transition period until the end of 2020."
Last February Noonan had said that it was a "flawed premise" to include profits routed through Irish offshore companies in calculating the Irish effective rate of corporate tax of US companies -- the reality was that Apple was only able to achieve a foreign tax rate of 1.9% in 2012 by using Irish companies with addresses at its Cork, Ireland, facility.
Also Tuesday, the Department of Finance published the results of its public consultation [pdf] on the OECD's (Organisation for Economic Cooperation and Development) Base Erosion and Profit Shifting (BEPS) project and in contrast with the OECD which publishes all submissions, the minister took the usual conservative approach of limiting transparency by only authorising publication of a summary of views that are not attributed to any of the 25 organisations or individuals.
So have a public consultation and present anonymous recommendations to the public.
The Finfacts submission to the Department of Finance is here [pdf].
In the early months of 2009 there were concerns in Dublin about plans by the new Obama administration to curb US corporate tax avoidance and the Dutch got upset about the Netherlands being called a tax haven while IDA Ireland, the inward investment agency, engaged a lobbying firm in Washington DC.
Toxic gridlock in Washington put paid to President Obama's ambitions on tax reform while in late 2010 attention turned to Europe where Nicolas Sarkozy, the French president, raised the issue of the low Irish corporate tax rate of 12.5% but he missed the bigger target - - the system where companies like Google were booking most of its foreign revenues in Ireland and avoiding tax by channelling profits tax-free via Amsterdam to Irish letter box companies in Bermuda. See here how the system works.
In Dublin misinformation that France's effective tax rate was 8% became a myth - Peter Sutherland, chairman of Goldman Sachs International used this rate to criticise the French in an FT op-ed in 2010 even though it applies to only SME firms and Michael Noonan, finance minister, also used it in 2011.
The standard French rate is 33.33%.
So with Washington in gridlock, coupled with a veto on EU tax harmonisation, and a domestic taboo on questioning the corporate tax regime as jobs would inevitably be put at risk in the official view, the common attitude was that there was nothing to worry about.
In late 2010 following big public spending cuts in the UK, citizen activism against tax avoidance began when mainly women, from a group called UK Uncut, began occupying the high profile retail stores of the Arcadia group such as Topshop, BHS, Burton, Miss Selfridge and Dorothy Perkins, controlled by Sir Philip Green, one of Britain's richest men.
David Cameron, British prime minister, had selected Green to review efficiency in Whitheall and according to The Guardian, his report published in October 2010 reported "shocking" wastage in the government's procurement strategy. However, his suitability as a government adviser was questioned because of his alleged tax avoidance. The newspaper said the businessman banked the biggest pay cheque in corporate history in 2005 when his Arcadia fashion business, paid a £1.2bn dividend. The record-breaking payment went to his wife, Tina, who lived in Monaco and was the direct owner of Arcadia. Because of this arrangement no UK income tax was due on the gain.
Stories of big US consumer giants such as Apple, Amazon and Google paying no or very low taxes in the UK prompted a commitment from the UK government together with France and Germany to tackle tax avoidance which culminated in the commitments in 2013 by the Group of 8 leading developed countries and Russia, and the Group of 20 leading developed and emerging economies, to work with the OECD to produce new rules on disclosure and base erosion by 2016.
In May 2013, the US Senate Permanent Subcommittee on Investigations issued a report, which said Apple Inc. used Irish companies, taht it regarded as 'stateless,' to avoid paying corporate taxes to any national government on tens of billions of dollars in overseas income over a period of four years.
This year there have been international agreements on tackling personal tax evasion through a more comprehensive system for sharing bank information and Switzerland has signed up to it while in September, the OECD issued its first set of major BEPS project proposals.
The inevitability of international tax reform triggered Tuesday's move in Dublin.
It is nine years since Glenn R. Simpson of The Wall Street Journal in a major investigation exposed how Microsoft was using its companies in Dublin and Irish companies in Bermuda to avoid taxes. WSJ's direct report; WSJ report [pdf; free via Tax Justice]
Meanwhile Finfacts has been reporting over a decade on accelerating tax avoidance while being a rare voice warning that the day of reckoning would come.
For more background see here:
...and the impact on the national accounts:
On Thursday we will examine proposals to attract intellectual property activity of substance to Ireland.
Related tax links
OECD BEPS Project submission from Finfacts: Ireland should embrace corporate tax reform - - includes analysis of underperforming indigenous tradable sector.
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