Tax threat Q&A
Your questions answered...
Q: Is Ireland in trouble over its corporate tax system again?
A: This is more of a global fight, but Ireland will be affected. The OECD, a Paris-based club of economies, has been working on ways to tighten tax rules and international treaties, and to increase government tax information-sharing.
Its work is focusing on tax planning strategies by big multinational companies that exploit gaps and loopholes in tax rules to make profits ‘disappear’ for tax purposes. These loopholes also mean profits can be shifted to locations where a company has little or no real activity, but the taxes are low, resulting in little or no overall corporate tax being paid.
Q: Are these tax avoidance strategies not illegal?
A: In most cases, they aren’t. Largely they just take advantage of inconsistencies in the current rules. But even if they are legal, the OECD argues it distorts competition and claim businesses that operate in multiple countries are able to profit from these opportunities, giving them a competitive advantage over smaller domestic firms.
Q: What were the main conclusions presented yesterday?
A: This global fight to stop multinationals shifting overseas has reached an important point, with the OECD agreeing to seven key measures for the first time. These plans for a major rewriting of international tax rules could eliminate structures that have allowed some big international companies to shave billions off their tax bills. Big US technology firms could be those most affected by the plans but others could also be impacted including pharmaceuticals and branded consumer goods. The seven areas include rules to prevent the abuse of international tax treaties, country-by-country reporting of revenues, profits, taxes paid for multinationals, and measures to deal with transfer pricing.
Q: Is Ireland’s 12.5pc corporation tax rate under threat?
A: No. Ireland has stressed it is committed to the 12.5pc corporate tax rate and nothing will change that. The OECD has signalled that issues such as the “Double Irish” or “Dutch Sandwich” – where a proportion of a company’s profits end up in a tax haven – could, however, be brought to an end.
Q: Why is all this happening now?
A: Largely for political reasons. As Europe and the US have faced years of crippling austerity, it doesn’t look good if big profit-making companies would be allowed to continue to exploit rules to maximise those profits.