Structure 1: The profits of the Irish company will typically be subject to the corporation tax rate of 12.5% if the company has the requisite level of substance to be considered trading. [334] This has not been without controversy and complaint from both Ireland's EU partners,[336][337][338] and also from the US (whose multinationals, for specific reasons, comprise almost all of the major foreign multinationals in Ireland).[339]. [239][240] O'Rourke also referenced the PricewaterhouseCoopers/World Bank survey that Ireland's ETR was circa 12%.[241][242][243]. CAIA uses the accepted tax concept of providing capital allowances for the purchase of physical assets. [334] This gave the second boost to the Celtic Tiger from 2000 up until the Irish economic crisis in 2009.[54][340]. Irish GDP was 162% of Irish GNI* in 2017. [61] Hines, with German tax academics, showed the German tax code charged a CT rate of 5% to the foreign profits of German multinationals. Ireland is a popular location for cash pooling and treasury activities, with a large number of multinationals centralising intra-group treasury activities to avail of the low corporation tax rate of 12.5%. [b], Ireland's corporation tax regime is integrated with Ireland's IFSC tax schemes (e.g. In June 2018, the Central Bank announced that €55 billion of U.S. distressed debt assets had transferred out of Section 110 SPVs.[191]. Inverted to Bermuda (1997), Ireland (2014). World Wide Tax System with relief for Foreign Tax Credits. While these BEPS schemes were successful in capital, they had downsides. Inverted to Switzerland (2012), Ireland (2014), then UK (2016). These abuses were discovered because Section 110 SPVs must file public accounts with the Irish CRO. Resident companies are taxable in Ireland on their worldwide profits (including gains). Prove they are carrying out a "relevant trade" on the IP in Ireland (i.e. The additional passing of the important Irish Taxes Consolidation Act, 1997 ("TCA") by Charlie McCreevy[341] laid the foundation for the new vehicles and structures that would become used by IFSC law and accounting firms to help global multinationals use Ireland as a platform to avoid non-US taxes (and even the 12.5% Irish corporate tax rate). The source of the contradiction is ascribed to the findings of U.S. tax academic, James R. Hines Jr.; Hines is the most cited author on tax haven research, and his important 1994 Hines–Rice paper was one of the first to use the term "profit shifting". With the accession to the EEC, the advantages of this policy became increasingly obvious to both the Irish government and to foreign multi-nationals; by 1982 over 80% of companies who located in Ireland cited the taxation policy as the primary reason they did so. The corporate tax rate in the United States is currently at a flat rate of 21%. Inverted to The Caymans (2002), and Ireland (2010). [59] However, research also showed that the artificial distortion of Ireland's economic data, and GDP in particular, by BEPS flows, led to a large credit bubble during 2003–2007 (due to the mispricing of Ireland's credit by international markets), and an eventual credit–property–banking crisis in 2008–2013 (when Ireland's credit was re-priced). Chapter by chapter, from Albania to Zimbabwe, we summarize corporate tax systems in more than 160 jurisdictions. Inverted with privately owned Azur Pharma Limited. The key features of Ireland’s tax regime that make it one of the most attractive global investment locations include: OECD BEPS compliant Knowledge Development Box (KDB). [9], An Irish corporate tax inversion is a strategy in which a foreign multinational corporation acquires or merges with an Irish–based company, then shifts its legal place of incorporation to Ireland to avail itself of Ireland's favourable corporate tax regime. Apple employed 6,000 people in 2014, and at a €100,000 cost per employee gave a €600 million wage-roll on 2014 Irish profits of €25 billion (see table below). Apple's Q1 2015 re-structure of their Irish BEPS tool, is considered by some economists to be a quasi–inversion. [296] As of November 2018[update], the UK had received the 3rd–largest number of U.S. corporate tax inversions in history, only ranking behind Ireland and Bermuda in popularity (see above). [153] In July 2018, it was disclosed in the Irish financial media that Microsoft (Ireland) were preparing a restructure of their Irish BEPS tools into a CAIA (or Green Jersey) Irish tax structure.[154]. As of November 2018[update], there are two rates of corporation tax ("CT") in the Republic of Ireland:[10][11][12][13], As of November 2018[update], the key attributes that tax experts note regarding the Irish corporate tax system are as follows:[12][16], The trends in Irish corporation tax ("CT") receipts to the Irish Exchequer were:[25][26][27][28]. ), Country in which executive decisions are made and main executives live, as opposed to country of legal incorporation, artificially inflated by BEPS accounting flows, EU investigation into Apple's Irish BEPS tools, artificially inflated GDP-per-capita statistic, every major U.S. technology and life sciences firm, CAIA (or Green Jersey) Irish tax structure, Irish Section 110 Special Purpose Vehicle (SPV), Qualifying investor alternative investment fund (QIAIF), EU illegal State aid case against Apple in Ireland, Senate Permanent Subcommittee on Investigation, Double Irish § Effect of Tax Cuts and Jobs Act, Double Irish arrangement § Effect of Tax Cuts and Jobs Act, U.S. is the largest beneficiary from tax havens, International Financial Services Centre § History, "Ireland is the world's biggest corporate 'tax haven', say academics", "Ireland named as world's biggest tax haven", "Tax Avoidance and the Irish Balance of Payments", "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network", "Global Shadow Banking and Monitoring Report: 2017", "REVIEW OF IRELAND'S CORPORATION TAX CODE, PRESENTED TO THE MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM", "Powerful Central Bank secrecy laws limit public disclosure of key documents", "The United States' Corporate Income Tax Rate is Now More in Line with Those Levied by Other Major Nations", "Lowest and Highest Global Global Corporate Tax Rates", "Ireland awarded high OECD rating on tax transparency", "Ireland does not engage in "harmful tax competition" says European Commission", "Ireland as a Location for Your Intellectual Property Trading Company", "Irish Corporate Tax Forecasting Analytical Note 10", "Corporation Tax: 2017 Payments and 2016 Returns", "Report on the Accounts of the Public Services 2016 (Chapter 20: Corporation Tax Receipts)", Comptroller and Auditor General (Ireland), "End December 2017 Exchequer Returns Presentation", "Most of Ireland's huge corporate tax haul last year came from foreign firms", "Corporation Tax – A Note on the Context and Concentration of Payments", "20 multinationals paid half of all Corporation tax paid in 2016", "Finance Accounts 2005 - Final 25 Sept.XLS", "ESTIMATES OF RECEIPTS and EXPENDITURE FOR THE YEAR ENDING 31 DECEMBER, 2015", "ESTIMATES OF RECEIPTS and EXPENDITURE FOR THE YEAR ENDING 31 DECEMBER, 2016", "ESTIMATES OF RECEIPTS and EXPENDITURE FOR THE YEAR ENDING 31 DECEMBER, 2017", "ESTIMATES OF RECEIPTS and EXPENDITURE FOR THE YEAR ENDING 31 DECEMBER, 2018", "How Ireland became a tax haven and offshore financial centre", "Dermot Desmond on the IFSC past and future", "Report on Ireland's Relationship with Global Corporate Taxation Architecture", "The structure of Ireland's tax system and options for growth enhancing reform", "The Structure of Ireland's Tax System and Options for Growth Enhancing Reform", "Tax Strategy Group: Irish Corporate Taxation", "CRISIS RECOVERY IN A COUNTRY WITH A HIGH PRESENCE OF FOREIGN-OWNED COMPANIES: The Case of Ireland", "Bono: controversial tax laws have brought Ireland the only prosperity it's ever known", "US taxpayers growing tired of Ireland's one big idea", "Denouncing Ireland as a tax haven is as dated as calling it homophobic because of our past", "IRELAND Trade and Statistical Note 2017", "FactCheck: How much do multinationals actually contribute in taxes? [328], In December 2017, the Irish Government published a study on the sustainability of its corporate tax system by University College Cork economist Seamus Coffey (called the Coffey Report). [108][237], In July 2020, the European General Court (EGC) ruled that the EU Commission "did not succeed in showing to the requisite legal standard" that Apple had received tax advantages from Ireland, and overturned the findings against Apple. The CPT was a relatively new innovation in the United Kingdom and had only been introduced in the years after World War I, and was widely believed at the time to have been a temporary measure. As of November 2018[update], outside of U.S. and UK inversions to Ireland, there have been no other recorded corporate tax inversions to Ireland from other jurisdictions. [62] In April 2016, award-winning Irish writer, Fintan O'Toole labeled Ireland's focus on being a U.S. corporate tax haven as the core economic model, as Ireland's OBI, (or "One Big Idea"). Germany applies a 5% tax on foreign profits). In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force (paid 50% of Irish salary tax), and created 57% of Irish OECD non-farm value-add. The following are the historical rates of Irish corporation tax since 1994. The new rules were directly designed to block the proposed $160 billion merger of U.S.–based Pfizer and Irish–based Allergan, which would have been the largest corporate tax inversion in history. The top 50 Irish companies, ranked by 2017 Irish registered revenues, are as follows: The tax schemes used by U.S. multinationals in Ireland are called base erosion and profit shifting (BEPS) tools by tax academics. While the Obama administration blocked the proposed $160 billion Pfizer–Allergan tax inversion to Ireland in 2016 (see above), Apple completed a much larger transaction in Q1 2015, that remained unknown until January 2018. Academics rank Ireland as the largest tax haven; larger than the Caribbean tax haven system. Future changes to the corporate tax system, such as the measures implemented by various governments over the last twenty years can be seen as a continuation of the policies of this period. [t] However, Ireland turns it into a BEPS tool by providing the allowances for the purchase of intangible assets, and particularly intellectual property assets; and critically, where the owner of the intangible assets is a "connected party" (e.g. 5. Google Ireland would offset its DST against Irish CT). During Apple's restructure into an Irish CAIA BEPS tool in Q1 2015, the cap was temporarily lifted to 100% (e.g. the 2017 column is from the 2018 report), by which time the "Tax Revenues" for that year are largely known (although still subject to further revision in later years). [231][232][233][234] The investigation labelled Ireland as the "holy grail of tax avoidance". A Section 110 Special Purpose Vehicle ("SPV") is an Irish tax resident company, which qualifies under Section 110 of the 1997 Irish Taxes Consolidation Act ("TCA"), by virtue of restricting itself to only holding "qualifying assets", for a special tax regime that enables the SPV to attain full tax neutrality (i.e. trade-deficit. At the time, Paladian was a Canadian listed firm, but Canadian rules allowed the merged Endo and Paladian to "self-invert" to Ireland. [253][254], Once inverted, the US company can use Irish multinational BEPS strategies to achieve an effective tax rate well below the Irish headline rate of 12.5% on non–U.S. FDII and GILTI rates), and the EU's 2018 impending Digital Services Tax. Historically the corporate tax take represented 13pc to 15pc of the overall tax receipts. Indeed, only one policy sticks out during those year of Fianna Fáil rule; being the continued reduction in the level of the allowance on which firms were to be exempt from taxation under the CPT, from £10,000 when Cumman na nGaehael left office, to £5,000 in 1932 and finally to £2,500 in 1941. You'll find us responsive to your needs, proactive, professional and willing to go the extra mile. U.S. investigations, from the first U.S. IRS study in 1981,[q][106] up to and including 2013 U.S. McCain–Levin Senate investigations into Apple's tax structures, label Ireland as a "tax haven" for U.S. Ireland's aggregate § Effective tax rates for foreign corporates is 2.2–4.5%. [q][106] In February 1994, the U.S. tax academic, James R. Hines Jr. identified Ireland as one of seven "major" tax havens for U.S. multinational profit shifting. 12.5%. [54] The results, summarised on Section 2 (page 13) of the report, showed all of the Irish experts, with the exception of Dr. Jim Stewart, agreed with Feargal O'Rourke and PricewaterhouseCoopers: In August 2016, when the EU Commission published the results of their 2–year detailed investigation of Apple's tax structure in Ireland (see above), showing that Apple's ETR in 2014 was 0.005%,[109][244] the Irish Revenue Commissioners stated that they: "had collected the full amount of tax that was due from Apple in accordance with the Irish law". [109] In 2014, the EU Commission forced Ireland to close its Double Irish BEPS tool,[110] however, Ireland had replacements in place: the Single Malt (2014), and the Capital Allowances for Intangible Assets (CAIA) (2009). IP to Ireland (resulting in a phenomenon dubbed by some as "leprechaun economics"). Ireland is fully committed to this process, and to ensuring that our corporation tax code is in line with international best practices. In 2016, it was discovered that U.S. distressed debt funds used Section 110 SPVs, structured by IFSC professional service firms,[173] to avoid material Irish taxes[174][175][176] on domestic Irish activities,[177][178] while State-backed mezzanine funds were using Section 110 SPVs to lower their clients Irish corporate tax liability. [229] The investigation aimed to examine whether Apple used offshore structures, in conjunction with arrangements, to shift profits from the U.S. to Ireland. Although the Irish target had to be over 40% of the combined group for the inversion to be fully considered as outside of the U.S. Foreign multinationals were now 80% of corporate taxes, and concentrated in a smaller group. the corporate/corporate parent had previously left the U.S.), and thus do not need an acquisition of an Irish—based corporate to execute the move to Ireland, as per U.S. tax code requirements (see above). This will have the effect of reducing the minimum effective tax rate on IP-related profits from 2.5% to 0%. Make no mistake: the headline rate is not what triggers tax evasion and aggressive tax planning. The effective tax rate is the rate of taxation implied by the actual quantum of tax paid versus profits before all deductions are applied. International tax reform in recent years Companies taking advantage of Ireland's corporate tax regime are also threatened by the EU's desire to introduce EU–wide anti-BEPS tool regimes (e.g. a Group subsidiary, often located in a tax haven); and has valued the assets for the inter-Group transaction using an Irish IFSC accounting firm. [9][54][334], A 'special rate' of 10% for companies in manufacturing (and the Shannon Free Zone), was introduced in 1980–81 (with EU State-aid approval), and extended to the financial services in the International Financial Services Centre (IFSC) zone in 1987 (with EU State-aid approval); due to EU decision to withdraw EU State-aid approval in 1996–1998,[24] the special rate was phased-out and ended on 31 December 2003 for new schemes, with expiry for all existing IFSC schemes in 2005, and all existing manufacturing schemes by 2010. Ireland helps them do this by generously defining what profit it will tax, and what it will leave untouched. The first US tax inversions to Ireland were Ingersoll Rand and Accenture 2009. [306][307][308] The DST is designed to "override" Ireland's BEPS tools and force a minimum level of EU tax on U.S. technology firms. The tax deduction can be used to achieve an effective tax rate of 2.5% on profits from the exploitation of the IP purchased [via the CAIA scheme]. [24][52][53] The transformation was accelerated when Ireland's standard corporate tax rate was reduced from 40% to 12.5% (phased in from 1996 to 2003), in response to the EU's 1996–1998 decision to withdraw the State-aid waiver. While various sources quote the amount of untaxed cash reserves as being closer to USD 2 trillion, a component of this figure represents cash flow that is awaiting reinvestment in the overseas markets, non-cash assets, and U.S. banking flows; the strong consensus is that the pure cash figure is at least over USD 1 trillion. [158][228], In May 2013, Apple's Irish tax practices were questioned by a U.S. bipartisan investigation of the Senate Permanent Subcommittee on Investigation. Professor Jim Stewart, Trinity College"MNE Tax Strategies in Ireland" (2016)[157]. 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