IDA chief says 12.5pc tax rate has to be linked to 'substance'
THE head of the IDA has said only multinationals with "substance'' in Ireland should be availing of the 12.5pc corporation tax rate.
Barry O'Leary was reacting to last week's revelation that Google cut its tax bill by $3.1bn (€2.23bn) after channelling foreign profits through an Irish firm and then on to Bermuda.
Mr O'Leary, on a visit to the US and speaking to CNBC, said Google had large-scale operations in Ireland, although he declined to talk about the specifics of the Google transaction.
"I think we are very, very clear in terms of the 12.5pc corporation tax rate, it is related to having substance in Ireland. If you look at the players, the main determinant is can you put enough activities in to justify the tax benefit."
"Google was mentioned -- they have nearly 2,000 people in Ireland, eBay/PayPal have 1,700, State Street have 2,500, so you have substance," he said, responding to questions about how multinationals use their Irish operations for tax reasons.
"So what happens after the profit leaves Ireland? In actual fact, Ireland doesn't allow it to go to the Bahamas or wherever, but there are other locations," he said.
"I prefer not to get into individual companies. But it is very important for the Irish tax authorities that substance equals the 12.5pc," he commented.
O'Leary indicated he was not worried about suggestions in the US that some multinationals will be allowed to bring cash back into the US from other locations in a new tax amnesty.
O'Leary said the amount of US investment in countries like Ireland was simply part of "the global nature of competition".
He said Ireland was facing competition for major foreign direct investment every day from locations like Singapore and Switzerland.
Last week it emerged in the US that Google cut its tax bill by using a strategy known as the "Double Irish", under which it shuttled foreign profits through its Irish operation to Bermuda.
Google's "income shifting" helped reduce its overseas tax rate to 2pc, the lowest among the top five US technology companies.
Google's tax reduction method takes advantage of Irish tax law to legally move profits in and out of subsidiaries here, eventually lodging them in island havens that levy no corporate income taxes.
Companies that use the "Double Irish" arrangement -- so named because it relies on two Irish companies -- avoid taxes at home and abroad.
Facebook is preparing a similar structure that will send earnings from Ireland to the Cayman Islands, according to its filings in the Caymans and Ireland.
A Google spokeswoman said that the firm's practices were "very similar to those at countless other global companies" operating across a wide range of industries.