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70 • Fifty Shades of Tax Dodging Ireland “The 12.5% [corporation] tax rate never has been and never will be up for discussion … The Road Map 660 responds to a changing international environment and ensures that we continue to attract and retain companies of real substance offering real jobs. The Road Map will improve Ireland’s R&D regime … enhance Ireland’s existing intangible asset tax provisions to make Ireland an even more attractive location for companies to develop intellectual property.” Irish Finance Minister Michael Noonan, Budget Speech 2015 661 Tax policies General overview A September 2015 poll showed that 70 per cent of Irish respondents believe tax avoidance by multinationals is morally wrong, even if legal. 662 The past year has seen Ireland take one significant step forward in tackling the loophole that allowed the ‘Double Irish’ tax avoidance mechanism as a result of international pressure, but also a few steps back – expanding generous corporate R&D incentives and introducing a patent box tax offering in 2015. Ireland expanded its network of double taxation treaties, including a somewhat improved one with Zambia; it continued to be a location of choice for Special Purpose Entities; and kept a watchful eye on EU and OECD initiatives to advance the reform of international corporate taxation standards. As the European Commission continues to investigate Ireland’s tax arrangements with Apple in 2015, the government insists that Ireland has broken no EU ‘state aid’ rules in terms of the advisory tax opinions issued to the corporation. The Revenue Commissioners have been given enhanced resources to address transfer pricing – but not to inquire into transfer pricing transactions that may artificially boost Irish profits; rather “to defend its tax base” in the face of “international transfer pricing disputes… likely to grow in number.” 663 The publication date for a government spillover analysis on the effect of Ireland’s tax system on developing countries has been repeatedly pushed back through spring into autumn 2015. Even before publication in October (too late for analysis in this report), the study appears not to have gone into the depth and detail that tax justice campaigners were calling for. 664 In a year of ongoing investigations of tax rulings by the European Commission and European Parliament, when the UN rapporteur on extreme poverty and human rights stated that “nobody believes Ireland is not a tax haven” while decrying the effects of the country’s tax system on developing countries, 665 and with the planned introduction of a patent box, it is difficult to shake off the impression that Ireland is still among those jurisdictions in the EU that are most problematic when it comes to cross-border tax avoidance. The government’s Finance Bill 2015 (introduced in October 2014) sought to put an end to the ‘Double Irish’ scheme used by Google, Apple and others, 666 by establishing “a default rule that all companies incorporated in Ireland are tax resident in Ireland,” 667 unless otherwise determined under a bilateral tax treaty. The change came into effect for new companies from 1 January 2015, but a long transition period to January 2021 will apply for existing companies. 668 Together with Budget 2015, the government published its Road Map for Ireland’s Tax Competitiveness in which it identified ten specific commitments and actions to enhance its tax competitiveness. 669 The road map provided for “enhanced” incentives for R&D and internationally mobile staff members, a Foreign Earnings Deduction tax scheme, expansion of Ireland’s tax treaty network and increases in tax authority resources “to defend its tax base” during anticipated transfer pricing disputes. The Finance Bill also included changes to strengthen the general anti-avoidance and Mandatory Disclosure regimes. 670 There is an increasing focus by the Revenue, through transfer pricing law and practice, “on ensuring that multinational profits are not understated,” Finance Minister Michael Noonan stated in response to a written Parliamentary Question in June 2015. 671 From 2012 to the end of January 2014, “a number of transfer pricing interventions were opened,” the Department of Finance has stated, but “to date, none of these have given rise to additional tax revenues.” 672 Tax rulings Ireland states that it does not have a statutorily binding tax ruling system but that the Revenue Commissioners, “in certain limited circumstances, operate a system of nonbinding advance opinions where companies can seek advice on the correct application of the law in their self-assessed tax filings.” 673 The European Commission is investigating two advance opinions to Apple subsidiaries over a possible breach of state aid rules. The Commission missed its June 2015 deadline for publishing its findings, citing delays from some Member States among those under investigation (Ireland, Luxembourg and the Netherlands), though not specifying Ireland, as the reason for the delay. 674
Fifty Shades of Tax Dodging • 71 The Revenue’s statutory requirement to protect the Ireland states that the Knowledge Development Box (details confidentiality of taxpayer information means that it does not of which were announced too late for analysis in this report) publish details of tax opinions issued to taxpayers, Finance will comply with the so-called ‘modified nexus’ approach 688 Minister Noonan stated in June 2015. 675 Opinions may be and holds that “there should be no unfavourable impact on made available on a ‘no-names’ basis by request under the the tax base of any jurisdiction” if this approach was adhered Freedom of Information Act. 676 From information compiled to to by all countries. 689 Ireland previously worried “whether respond to European Commission enquiries on tax rulings, patent boxes might amount to a harmful tax regime”, but Minister Noonan disclosed that the Revenue had identified welcomed EU and OECD examination of patent boxes. 690 99 advance opinions relating to corporation tax matters in The results of the government’s consultation on the 2010, 128 in 2011 and 108 in 2012. 677 Ireland also had ten patent box were released in July 2015. 691 Legislation for Advance Pricing Agreements (APAs) in force by the end of the knowledge development box will be included with the 2013, according to data compiled by a European Commission Finance Bill in autumn 2015 and corporate income that expert group. 678 In accordance with its guidelines, the qualifies will be subject to a reduced rate of corporation tax Revenue “refuses to provide opinions whenever it considers of 6.25 per cent. 692 transactions would facilitate tax avoidance”; however, “it does not record the number of such refusals.” 679 Tax treaties Special Purpose Entities (SPEs) Ireland has signed double taxation agreements with 72 countries (68 of those are currently in effect). 693 Work to Although Ireland does not collect statistics on SPEs in expand this “will be accelerated where possible,” according to general, 680 it does so for Financial Vehicle Corporations the government. 694 The latest treaties signed with developing (FVCs) – a special type of SPE that deals in securitisation countries were renegotiations of existing treaties with Zambia transactions. These statistics show that Ireland holds (March 2015) and Pakistan (April 2015), 695 as well as a treaty close to 23 per cent (more than €400 billion) of all assets with Ukraine that entered into force in August 2015. 696 held by FVCs in the EU, making it the biggest FVC centre in the EU. 681 Ireland’s position as a preferred jurisdiction for The government sees its expansion of tax treaties with structured finance is related to Section 110 of the tax law, African countries as part of its work towards policy which gives SPEs “a neutral tax position.” 682 The favourable coherence for development, highlighting recent treaties tax treatment of Section 110 companies is responsible with Botswana (2013) and Ethiopia (2014) as positive steps for what one tax advisor calls “Ireland’s world renowned forward. 697 This is despite research having shown that big-ticket leasing industry”, with favourable treatment for Ireland’s former treaty with Zambia could have deprived aircraft and shipping leasing. 683 the country of tax revenues equivalent to €1 in every €14 of Irish development aid to the country. 698 Ireland has largely Despite the importance of SPEs in Ireland, the government favoured the OECD rather than UN model for tax treaty states that Ireland does not have a specific definition for negotiations with developing countries, but the government SPEs, and therefore cannot provide a definitive response in states that it is happy to consider another country’s model relation to questions about them. 684 as the basis for negotiations. 699 More recent treaties, such as those with Zambia and Pakistan, reference elements of Patent box both models. Analysis of the renegotiated Ireland-Zambia On the same day that the government announced the treaty in 2015 shows that it is substantially better than the phasing out of the ‘Double Irish’ tax avoidance structure, it 1971 one it replaces and is generally more pro-development also announced the planned introduction of a Knowledge than the OECD treaty model. However, there are still some Development Box, or patent box, 685 having had one from the concerns, 700 including the absence of an anti-abuse clause. 1970s until 2010. 686 The new Knowledge Development Box scheme would be “best in class and at a low, competitive and sustainable tax rate”, Minister Michael Noonan said in his 2015 Budget speech. 687
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Contents Glossary 4 Executive summa
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