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Yahoo relocation cements our 'tax haven' reputation

Yahoo's decision to move its European tax base from Switzerland to Ireland is, on the face of it, another feather in the IDA's cap.

It means that Yahoo joins several other US hi-tech giants such as Google and Apple in having its European tax base in Ireland.

The switch seems to have been driven by recent changes in Swiss tax law. Until recently, Switzerland taxed profits earned outside the country at a lower rate than profits earned within the country.

The EU forced Switzerland to change the law so that all company profits are now taxed at the same rate. This meant that Ireland's 12.5pc company tax rate became more attractive than Switzerland's 21pc tax rate.

However, with all of the larger European countries cracking down on (so far perfectly legal) tax avoidance by US multinationals, will the Yahoo move prove to be a switch too far for this country?

The main reason the big US multinationals have Irish operations and base their European tax affairs here is to take advantage of our lax tax regime.

This 12.5pc tax rate is one of the key attractions when it comes to luring such companies to set up in the Ould Sod.

A key attraction, but not the only attraction, it now transpires.

Last May, the US Senate's Investigations Committee heard evidence showing that Apple had, by routing $74bn (€54bn) of profits through here, paid an effective tax rate of only 2pc.


The committee alleged that Apple had negotiated a "sweetheart" tax deal with this country, an allegation vehemently denied by the Irish Government in a letter from the Irish ambassador to the committee.

While the Irish Government may be technically correct, it doesn't matter. As the old saying goes: when you're explaining, you're losing. And Ireland has had to do an awful lot of explaining recently.

As national budgets everywhere come under pressure, countries are growing less tolerant of the aggressive tax avoidance techniques that many multinationals use to cut their tax bills – and of countries such as Ireland which facilitate such techniques.

But surely our 12.5pc tax rate is kosher and passes all of the OECD's tests?

"Ireland is not a tax haven" has been the mantra in recent years.

If it looks like a duck (or tax haven), quacks like a duck and walks like a duck then it's probably because it is a duck.

That's the position that Ireland finds itself in. Most European countries now view us as a tax haven preying on their tax revenues.

But surely we can retain the 12.5pc tax rate? Didn't we defy both France and Germany to keep the 12.5pc tax rate even during the dark days of the bailout?

While the Government is entitled to full credit for rebuffing attempts to scrap the 12.5pc tax rate at EU level, is it possible that changes at national level could render our corporate tax rate moot?

As things stand, most countries allow companies to calculate, within very broad parameters, the profits which they earn in a country. That's beginning to change.


What if individual countries insisted that companies paid tax on the basis of the proportion of their total business transacted in that country? (France has already lobbed a $252m tax demand into Amazon and is understood to be looking closely at Google too.)

If – or more likely when – this practice becomes more widespread, then it won't matter a damn what our company tax rate is.

The Yahoo switch almost certainly brings such a change ever closer.