Ireland still faces questions on how companies use the country to lower taxes after the Finance Minister announced measures in yesterday's Budget to close a loophole, according to two US senators.
Michael Noonan unveiled plans yesterday to scrap a measure in allowing companies registered here to be “stateless” in terms of tax residency.
This may enable companies to channel worldwide profits through their Irish-incorporated company and not have a tax liability anywhere, the Finance Minister said. Speaking last night, he said that "not very many" firms other than Apple do this.
While Apple has stated that it does not use "tax gimmicks", US Senators John McCain and Carl Levin described Ireland as a tax haven in hearings in March.
Apple reduced its tax bill by setting up a unit in Cork, which did not declare tax residency in Ireland because it is neither managed nor controlled in the country, according to Senate hearings. As the unit is incorporated in Ireland, it is not US tax resident.
The move by Mr Noonan "is encouraging," McCain and Levin said in a statement last night.
"Important questions do remain, however, including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income" from Ireland’s 12.5% corporate tax rate, they said.
"Hopefully, the answers will demonstrate that Ireland is ready to close the door on these egregious corporate tax abuses enabling multinational tax avoidance," the senators said.
While the proposal targets companies like Apple using Irish subsidiaries that do not declare a tax residence anywhere, many US multinational companies rely on Irish subsidiaries that claim to be "tax resident" in zero or low tax jurisdictions - which accomplishes the same savings.
A report on Bloomberg said that Google last year cut $2.2 billion off its tax bill by paying royalties to an Irish unit that it said is headquartered in Bermuda. The announcement by Mr Noonan yesterday would not affect that structure, known as a “Double Irish.”
Yahoo has paid royalties to an Irish subsidiary resident in Grand Cayman, while LinkedIn has paid royalties to a subsidiary that is resident in the Isle of Man. Anti-virus software maker Symantec uses one claiming residency on the island of Jersey; and EBay has managed its tax bill using an Irish subsidiary that declared its tax residence in Luxembourg, corporate filings show.
The Finance Minister told the Dáil yesterday that increasing tax reputation is a key factor in winning mobile foreign direct investment. He said that the international rules for taxing multi-national companies have been in the focus over the last year, adding that global challenges require global action.
Ireland wants to be part of the solution to this global tax challenge, not part of the problem, Mr Noonan stated.