As Ireland's corporate tax regime comes under scrutiny again, the Sunday Independent has learned that 12 multinationals could be hit with massive tax bills and interest after the Revenue Commissioners stepped up its efforts to clamp down on a tax avoidance scheme which allows companies to boost their profits by avoiding taxes in certain countries.
Last week, it emerged that the European Commission has begun a probe into allegations that Ireland offered "sweetheart" tax deals to US multinationals. This followed revelations that multinationals such as Apple and Google were paying tiny amounts of tax on their profits here.
The Revenue is probing "transfer pricing" arrangements at the 12 unnamed multinationals. The scheme allows multinationals to shift profits to companies within the same group that are based in low-tax countries. By doing so, they avoid paying hefty tax rates on much of their profits.
The Revenue Commissioners has asked 12 companies to examine whether they are in breach of Irish transfer pricing laws. Once their internal reviews are complete, they must send a report to Revenue with their findings. The companies were given three months to conduct their reviews.
So far, Revenue has received 11 reviews from multinationals. "We're looking at the information in these reviews at the moment," said a spokeswoman for the Revenue. "Not all requests [for reviews] were sent at the same time."
If there is any evidence in the internal reviews to suggest that a company has not paid as much tax as it should have, the multinational could face a full transfer pricing audit from the Revenue Commissioners. If the audit confirms that the company has underpaid tax, hefty tax bills could ensue.
"If any adjustment is needed to the Irish tax liability of a company, Revenue will amend the company's assessment to tax to reflect any additional tax that Revenue believes is due," said the Revenue spokeswoman.
If the multinational has a tax treaty with a country that has already taxed their profits, the company can ask the tax authorities of that country to negotiate with the Revenue Commissioners on the amount of tax that should be paid by the company in Ireland, the spokeswoman added. Doing so would help the company avoid any double taxation of profits.
"Once the final Irish tax liability is determined, the additional tax due, if any, will be payable with interest," said the spokeswoman.
Any company which does not provide Revenue with the findings of its internal review is likely to face a full transfer pricing audit.
"Transfer pricing cases are very fact and circumstance dependent, and tax authorities need to have a good understanding of the specific commercial context within which each group of companies operates," added the Revenue spokeswoman.
"At this stage in the process, it is still too soon to say what the overall outcome of the transfer pricing compliance programme will be, as the process of analysing and reviewing the reports submitted has just started and the process is a complex and time-consuming one."