The US and the Republic are to open negotiations on a new tax arrangement between the two countries, which will get under way at a time of unprecedented debate about international taxation policy.

The existing tax treaty dates back to 1997 and the Department of Finance says that negotiations are to take place on updating "certain elements" of it, likely to focus on US attempts to limit the tax planning engaged in by major multinationals.

Irish negotiators will try to ensure that the new arrangements do not make it more difficult to attract inward investment.

Sources say the existing treaty gives considerable leeway to companies in their tax arrangements and that the expectation is that the rules will now be tightened.

The Department of Finance and the Revenue Commissioners here are seeking submissions from interested parties in a consultation process on the tax rules, ahead of what is likely to be a lengthy negotiating process.

The US is seeking to use a new legal model it has developed to draw up new treaties with a number of countries, and part of its motivation will be to limit the ability of companies to use overseas branches to reduce their US tax bill.

Vital

Tax treaties set the rules for imposing taxation between different jurisdictions and are vital for big international companies, imposing guidelines in the way they can allocate expenses between different operations – so-called transfer pricing – and a range of other issues.

In an announcement on Thursday, the Department of Finance said that the OECD had made a variety of recommendations in its October 2015 report on base erosion and profit sharing.

The US has also published a new “model” tax treaty, a template for how it wants treaty to work in the future.

“In this context, discussions have begun with the United States Treasury on updating certain elements of the Ireland/USA Double Tax Treaty,” the Department statement said.

In its announcement of the model treaty, the US Treasury said a key goal was to eliminate double tax “without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance” he added.

While many of the updates in the model treaty reflect technical improvements, there are some substantive measures to crack down on tax evasion and avoidance, the Treasury said.

“The 2016 Model also includes measures to reduce the tax benefits of corporate inversions,” the Treasury announcement said.

“Specifically, it denies reduced withholding taxes on US source payments made by companies that engage in inversions to related foreign persons.”

A number of US companies have merged with smaller Irish firms in tax-driven inversion deals in recent years, effectively escaping the US tax net.

The Irish government has said it sees little economic benefit in these for the economy here and has not sought to attract them.

The negotiations come at a time of unprecedented tension on tax policy between the US and Europe, with the US on Wednesday accusing the EU Commission of unfairly targeting US multinationals in state aid investigations.

The most high-profile of these is the investigation into Apple’s tax arrangements with Ireland, where a final decision from the EU Commission is expected shortly.

Against this backdrop, moves by the US to seek new tax treaty arrangements with a number of European countries, including Ireland, look bound to be contentious.

To come into force, any such treaties would have to be approved by parliaments on both sides of the Atlantic.