The Irish Finance Minister announced the end of the "Double Irish" tax break in his budget speech on Tuesday.
Tech giants such as Facebook, Google, Apple and LinkedIn have taken advantage of Ireland’s lenient tax set-up for decades. But due to external pressure from Brussels and elsewhere, the emerald isle will outlaw the controversial “Double Irish” practice.
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From next year new companies resident in Ireland will have to be tax resident in Ireland, but a convenient loophole means existing companies can continue to flip their taxes until 2020.
The Double Irish works by funnelling royalty payments for intellectual property from one Irish-registered subsidiary to another Irish-registered, but offshore, subsidiary: “Offshore” normally being in the Cayman Islands, Bermuda or a similar tax haven. Under Irish tax law, this second company is usually not liable for Irish tax and the first subsidiary only pays tax at Ireland’s gentle 12.5 per cent rate.
Although Apple, which pioneered the scheme, is now under investigation by EU Competition authorities, other digital giants have followed suit. According to Bloomberg, Facebook flipped more than $700m to the Cayman Islands, while Google cut its income tax bill by about $2.5bn last year using the same method.
With the attractive Double Irish to be phased out, Finance Minister Michael Noonan wants to introduce a “patent box” scheme that will give companies a different incentive to handle some of their affairs in Ireland. ®