Ireland has dropped its lucrative tax scheme that helped multinationals like Apple and Amazon to pay lower taxes and save billions. The EU and the US have been increasing pressure to bring taxable income back home.
The tax code change announced by Ireland’s Finance Minister Michael Noonan Tuesday means that all Irish registered companies will be obliged to be tax resident in the country.
The so-called ‘Double Irish’ scheme that’s now being abandoned allowed a multinational to send untaxed profits to an Irish subsidiary, that then paid the money to another Irish registered company that is a tax resident of a some tax haven – most often Bermuda.
This scheme was often coupled with a relevant tax trick known as a ‘Dutch Sandwich’, which uses a structure based exclusively in the Netherlands to avoid some taxes.
The changes announced Tuesday are Ireland’s biggest tax reform since the country cut the corporate tax rate to 12.5 percent in the late 1990s when it sought to attract more jobs. It remained untouched in the 2015 budget, the first since Ireland withdrew from the EU-led austerity program.
Mr. Noonan said that for new companies the law will come into effect on January 1, 2015, while existing companies will have a transition period until the end of 2020.
"This proactive change will not bring an end to international tax planning. We are giving certainty to investors about corporate tax in Ireland for the next decade," he said.
Such tax schemes in Ireland helped the country add around 160,000 new jobs that were created by some 1,000 international firms that came to Ireland to benefit from its tax regime.
Unlike most of Europe, Ireland is expected to grow 5 percent in 2014 and 2015. In December, Ireland became the first country to leave the IMF bailout program and it can now borrow money for 10 years at 1.7 percent.
READ MORE: Life after bailout: Ireland escapes 'shackles' Troika lenders
Joining 'best international practice'
"These measures [Tuesday changes - Ed.] will enhance Ireland’s corporate tax regime and align it with best practice internationally. It will ensure that Ireland continues to be the home of the best and most successful companies in the world. It will attract and retain companies with real substance offering real jobs," Mr. Noonan said.
The EU and the US have been increasingly pressing Dublin to put a plug in the tax loophole, as it meant billions of lost revenue from such huge multinationals as Facebook, Amazon, Apple, Starbucks and carmaker Fiat’s financial arm.
Most recently, officials from the European Commission demanded that Luxembourg hand over documents relating to online retailer Amazon’s tax affairs.
READ MORE: Fiddling the books? EU to investigate Amazon’s tax rates in Luxembourg
The US loses up to £56 billion a year through companies that use Irish tax structures to legally protect their money.
The latest Amazon EU Sarl financial report showed the Luxembourg structure helped the company cut its overall tax rate by 8 percent to 31.8 percent. Apple also managed to apply a corporate tax rate of just 2 percent, as a US Senate committee claimed.