The international movement against aggressive tax planning by multinationals, which saw the Government this week announce the closing of a tax structure used by Google, Facebook and others, holds significant opportunties for Ireland, according to research by the Department of Finance.
The research concludes that the practice by multinationals of directing large amounts of their turnover to offshore tax havens where their intellectual property resides is set to come under ever greater pressure.
This in turn will prompt multinationals to look to move their intellectual property from tax havens and “Ireland should continue to monitor change in this area, as a competitive tax rate could become highly relevant”.
The research by the department concludes the work being done by the Organisation for Economic Co-operation and Development, which is aimed at drafting new global rules for corporate taxation, fits with the policy that has operated in Ireland since the 1950s.
This is because the OECD is seeking to create a greater alignment between where the substance of a company’s business resides and where it pays tax. Historically, Ireland has used its low corporation tax base to attract real and substantial business activities here.
The same research notes the importance and risk to Ireland’s economy that lie in the fact it is so dependent on foreign direct investment. A paper by the Revenue Commissioners that forms part of the research shows one €1 out of every €8 in tax raised in 2012 came from corporation tax, and almost three-quarters of the corporation tax raised in 2008 to 2012 came from foreign-owned multinationals.
The top ten companies were responsible for 24 per cent of the corporation tax raised. Furthermore, foreign multinationals have higher productivity than most domestic companies and wages tend to be twice those paid by indigenous firms.
In his budget speech on Tuesday, Minister for Finance, Michael Noonan announced the ending of the so-called double Irish tax structure, where companies could book sales from around Europe and further afield to their operating company in Ireland, before that company paid huge royalty or licence payments to another, Irish-registered company that was tax resident offshore.
At the same time, he announced plans to put in place a so-called “knowledge development box”, a structure that would create tax advantages for companies that locate their intellectual property here.
The department's research, published on its website, concludes that a large part of the pending findings by the OECD will focus on preferential intellectual property regimes.
Ireland, the research concludes, has always sought to align profits to substance.
