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13th Apr 2024

Dublin to scrap 'double Irish' tax loophole

  • Dublin: The Irish government has announced plans to phase out the so-called 'double Irish' device which allows firms to reduce their tax bills (Photo: William Murphy)

Ireland will scrap a controversial tax instrument which allows companies to legally shift huge profits from Ireland to countries with low taxes, the country's budget minister has announced.

Speaking in the Irish parliament on Tuesday (14 October), Michael Noonan told deputies that the scheme, known as "double Irish" would be closed to new entrants in 2015 and gradually phased out between now and 2020.

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He added that in the future all companies registered in Ireland would have to pay tax there.

The double Irish enables companies to make royalty payments to separate Irish-registered subsidiaries whose parent company is based in another country, allowing them to avoid paying corporate tax.

Taken together with Ireland's corporation tax rate of 12.5 percent, far lower than the EU average, it has prompted plenty of criticism from other EU countries in recent years.

But Noonan insisted that the 12.5 percent rate was "settled policy" and would not change.

The European Commission is currently investigating whether the tax deal between software giant Apple and the Irish government breaks the bloc's rules on state aid, as well as similar cases in the Netherlands and Luxembourg.

Also on Tuesday, EU finance ministers agreed on rules requiring the automatic exchange of bank account information by 2017, in their latest bid to limit tax evasion.

At a meeting in Luxembourg, Luxembourg and Austria became the final countries to sign up to legislation, bringing more than six years of negotiations to a close. However, ministers agreed to grant Austria a one-year extension to comply in order to build new IT systems.

Both countries had also refused to sign up unless non-EU banking countries like Switzerland and Liechtenstein agree to apply the standard.

The regime will require banks to disclose the details of accounts belonging to customers who do not reside in the country in which the accounts are held.

"Bank secrecy is dead," outgoing taxation commissioner Algirdas Semeta told reporters following the meeting, adding that the principle of automatic exchange would would be applied "in its widest form."

He added that the EU was "once again, setting the place in international tax developments".

It also makes good on a promise made by EU leaders in March to increase transparency in tax reporting, and would put the EU in line with standards drawn up by the Organisation for Economic Co-operation and Development (OECD) to combat tax fraud.

The EU executive has estimated that European governments lose €1 trillion per year between them as a result of tax fraud.

For his part, Italian finance minister Pier Carlo Padoan, who chaired the meeting, described the agreement as "an international structural reform that will change behaviour, (and) will move taxpayers and companies away from the temptation to evade taxes".

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