Ireland: Realpolitik of global debate on tax regimes means rules must be altered

Ireland’s corporate tax regime will have to change and it will not be possible to sustain current corporate residency rules, a senior figure in the Irish foreign direct investment community has said.

Feargal O’Rourke, chairman of the tax policy committee of the American Chamber of Commerce Ireland, and chief of tax with PwC Ireland, said the “realpolitik” of the world debate on corporation tax meant Ireland’s rules needed to change.

Ireland’s corporate residency rules are significant to the world tax structures of companies such as Microsoft, Apple and Google, which have major headquarter operations here.

Irish law allows Irish incorporated companies to be tax resident offshore in certain circumstances.

A change to the policy would end a process whereby multinationals based here reduce their tax bills by making intellectual property payments to Irish subsidiaries that are tax resident offshore.

Tax windfall

However, it is likely there would be no corporation tax windfall for the Irish exchequer as the companies would probably locate their IP elsewhere.

Yesterday the Department of Finance announced a public consultation process on how Ireland should respond to the changing international tax environment. The Organisation for Economic Co-operation and Improvment(OECD) is to propose changes to the international tax system later this year that will affect multinational taxation for the coming decades.

“In what is a politically-dominated process of world tax reform, the need for optical and political ‘wins’ means that Ireland will not be able to sustain its current corporate residency rules,” Mr O’Rourke as well said.

Criticism

Although international criticism of the role Ireland plays in multinational taxation was “technically flawed in a lot of instances”, he said, the “realpolitik” of the situation meant the only issue being debated was one of timing.

“I believe the balance of advantages lies in Ireland dealing with [the issue] on a proactive basis.”

The Department of Finance said that in the context of the OECD process, Minister for Finance Mr Noonan was examining ways in which the competitiveness of Ireland’s tax regime could be enhanced, and Ireland’s international reputation protected, in preparation for the next budget. There is no intention to change the 12.5 % corporation tax rate.