thumb|Former Finance Minister, [[Charlie McCreevy, reduced Irish corporate tax from 32% to 12.5% in the 1999 Finance Act, and his 1997 Tax and Consolidation Act laid the framework for Ireland's BEPS tax tools.
Ireland's "headline" corporation tax rate is 12.5%, however, foreign multinationals pay an aggregate of 2.2–4.5% on global profits "shifted" to Ireland, via Ireland's global network of bilateral tax treaties. These lower effective tax rates are achieved by a complex set of Irish base erosion and profit shifting ("BEPS") tools which handle the largest BEPS flows in the world (e.g. the Double Irish as used by Google and Facebook, the Single Malt as used by Microsoft and Allergan, and Capital Allowances for Intangible Assets as used by Accenture, and by Apple post Q1 2015).
- a 12.5% headline rate for trading income (or "active businesses income" in the Irish tax code); trading relates to conducting a business, not investment trading;
- a 25.0% headline rate for non-trading income (or also called passive income in the Irish tax code); covering investment income (e.g. income from buying and selling assets), rental income from real estate, net profits from foreign trades, and income from certain land dealings and income from oil, gas and mineral exploitations in Ireland.
- The 10% manufacturing relief tax scheme ended in 2010 (see graphic).
Key aspects
thumb|2018 headline corporate tax rates for all 35 OECD members (pre and post the 2017 U.S. [[Tax Cuts and Jobs Act of 2017|TCJA)]]
, the key attributes that tax experts note regarding the Irish corporate tax system are as follows:
- Transparent. Many of Ireland's corporation tax tools are OECD–whitelisted, and Ireland has one of the lowest secrecy scores in the 2018 FSI rankings.
- "Worldwide tax". Ireland is one of six remaining countries that use a "worldwide tax" system (Chile, Greece, Ireland, Israel, South Korea, Mexico).
- No "thin capitalisation". Ireland has no thin capitalisation rules, which means that Irish corporates can be financed with 100% debt, and 0% equity.
- Double Irish residency. Before 2015, Irish CT was based where a company was "managed and controlled" versus registered; the "Double Irish" ends in 2020.
- Holding company regime. Built for tax inversions, it gives Irish–based holding companies tax relief on withholding taxes, foreign dividends and CGT.
- Intellectual property regime. Built for the BEPS tools of U.S. technology and life sciences firms, recognises a wide range of intellectual assets that can be charged against Irish tax; the CAIA arrangement.]]
[[File:Irish Corporation Tax (% of GDP and % of Total Tax).png|thumb|Irish Corporation Tax as % of Irish GDP, and as % of Total Irish Gross Tax (1974 to 2016). Source: OECD.
- Foreign firms pay 80% of Irish CT Revenue (notwithstanding that large U.S.–controlled tax inversions to Ireland, are classed as Irish firms).
- Irish CT Revenues jump in 2015, the year of Apple's re-structure of its BEPS tools.
{| class="wikitable"
|+ style="text-align: left;" |Table 3: Irish Corporation Tax (CT) Revenues: 2001–2019 (€ billion)
|-
!style="width:120px;text-align:left"|Calendar<br />Year
!style="width:120px;text-align:left"|Net Corporation<br />Tax Revenue (1)
!style="width:120px;text-align:left"|Total Exchequer<br />Tax Revenue (2)
!style="width:120px;text-align:left"|(1) as % of (2)
!style="width:120px;text-align:left"|Top 10 Payer as<br />% of Net CT (restated)
|-
|2002
|4.80
|29.29
|16.4%
|—
|—
|
|-
|2004
|5.33
|35.58
|15.0%
|—
|—
|
|-
|2005
|5.49
|39.25
|14.0%
|—
|—
|
|-
|2006
|6.68
|45.54
|14.7%
|17%
|—
|
|-
|2007
|6.39
|47.25
|13.5%
|16%
|—
|
|-
|2008
|5.07
|40.78
|12.4%
|18%
|—
|
|-
|2009
|3.90
|33.04
|11.8%
|35%
|—
|
|-
|2010
|3.92
|31.75
|12.4%
|32%
|circa 80%
|
|-
|2011
|3.52
|34.02
|10.3%
|39%
|circa 80%
|
|-
|2012
|4.22
|36.65
|11.5%
|34%
|circa 80%
|
|-
|2013
|4.27
|37.81
|11.3%
|36%
|circa 80%
|
|-
|2014
|4.61
|41.28
|11.2%
|37%
|circa 80%
|
|-
|2015
|6.87
|45.13
|15.2%
|41%
|circa 80%
|
|-
|2019
|10.9
|57.37
|19%
|40%
|77%
|
|-
|2020
|11.83
|56.33
|21%
|51%
|82%
|
|-
|2021
|15.232
|67.4
|22.6%
|53%
|style="background:#cfc;text-align:left"|89%
|
|-
|2022
|22.645
|82.345
|style="background:#cfc;text-align:left"|27.5%
|style="background:#cfc;text-align:left"|57%
|86.5%
|
|-
|2023
|style="background:#cfc;text-align:left"|23.842
|style="background:#cfc;text-align:left"|88.303
|27%
|52%
|83.8%
|
|}
Structure of Irish taxation
thumb|upright=1.5|Distribution of Irish Exchequer Tax Revenues
Each year, the Department of Finance is required to produce a report on Estimates for Receipts and Expenditure for the coming year. The table below, is extracted from the "Tax Revenues" section of the report for the prior-year (e.g. the 2017 column is from the 2018 report), by which time the "Tax Revenues" for that year are largely known (although still subject to further revision in later years).
[[File:Irish Exchequer Tax Revenues to GDP and GNI.png|thumb|upright=1.5|Irish Exchequer Tax Revenues as % of GDP / GNI*
!style="text-align:left"|2015
!style="text-align:left"|2016
!style="text-align:left"|2017
!style="text-align:left"|2014]]
Ireland's economic model was transformed from a predominantly agricultural-based economy to a knowledge-based economy, when the EU agreed to waive EU State-aid rules to allow Ireland's 'special rate' of 10% for manufacturing (created in 1980–81 with the EU's agreement), Ireland's policy is summarised by the OECD's Hierarchy of Taxes pyramid (reproduced in the Department of Finance Tax Strategy Group's 2011 corporate tax policy document). As shown in , annual Irish CT has been between 10 and 16 percent of annual Total Irish Tax from circa 1994 to 2018. However, since Apple's Irish restructuring artificially inflated Ireland's GDP by 34.3% in 2015, Ireland's Tax-to-GDP ratio had fallen to the bottom of the OECD range at under 23%. However, research also showed that the artificial distortion of Ireland's economic data, and GDP in particular, by BEPS flows, led to a large credit bubble during 2003–2007 (due to the mispricing of Ireland's credit by international markets), and an eventual credit–property–banking crisis in 2008–2013 (when Ireland's credit was re-priced).
Ireland's main foreign multinationals are from periods when their home jurisdiction had a "worldwide tax" system (see Table 1), and since the UK switched to a "territorial tax" system in 2009–12, Ireland has been almost exclusively a U.S. corporate–tax haven (see Table 1). In April 2016, award-winning Irish writer, Fintan O'Toole labelled Ireland's focus on being a U.S. corporate tax haven as the core economic model, as Ireland's OBI, (or "One Big Idea").
Multinational economy
thumb|upright=1.0|Dominance of U.S. firms. Irish corporate Gross Operating Surplus (i.e. profits), by the controlling country of the company (note: a material part of the Irish figure is also from U.S. [[#Corporate tax inversions|tax inversions who are U.S.–controlled). Eurostat (2015).]]
U.S.–controlled multinationals, either legally based in the U.S. or legally based in Ireland (e.g. tax inversions), dominate Ireland's economy. In June 2018, the American Chamber of Commerce (Ireland) estimated the value of U.S. investment in Ireland was €334 billion, which compared to 2017 Irish GNI* of €181.2 billion. In January 2018, Eurostat used 2015 data to show the gross operating surplus of foreign companies in Ireland was almost exclusively from U.S. companies, with the UK was a distant second, and little other foreign firm activity.
In 2016–2017, foreign multinationals, being entirely U.S.–controlled:
- Directly employed one–quarter of the Irish private sector workforce;
- Paid an average wage of €85k (€17.9bn wage roll on 210,443 staff)
- Directly contributed €28.3 billion annually in taxes, wages and capital spending;
- Created 57% of private sector non–farm value–add: 40% of value–add in Irish services and 80% of value–add in Irish manufacturing;
- They are from countries with "worldwide tax" systems. Tax academics show that firms from "territorial tax" systems (over 95% of all countries), make little use of tax havens. The only non–U.S. foreign firms in the top 50 Irish firms are UK firms from pre–2009, after which the UK switched to a "territorial tax" system. In December 2017, the U.S. switched to a hybrid-"territorial tax" system.
- They are concentrated. The top–20 corporate taxpayers pay 50% of all Irish corporate taxes, while the top–10 pay 40% of all Irish corporate taxes. The top 10 U.S.–controlled multinationals comfortably account for over 50% of Irish 2017 GDP.
- They are mostly technology and life sciences. To use Ireland's main BEPS tools, a multinational needs to have intellectual property (or "IP"),
- They use Ireland to shield all non–U.S. profits, not just EU profits, from the US "worldwide tax" system. In 2016, Facebook recorded global revenues of $27 billion, while Facebook (Ireland) paid €30 million in Irish tax on Irish revenues of €13 billion (half of all global revenues). Similarly, Google also runs most of its non–U.S. revenue and profits through its Dublin operation.
- They artificially inflate Irish GDP by 62%. All tax havens have a distorted GDP due to the effect of BEPS flows. Apple's Q1 2015 re-structuring of their Double Irish BEPS tool into a CAIA BEPS tool, increased the distortion to such a level that in February 2017, the Central Bank replaced Irish GDP with GNI*. In 2017, Irish GDP was 162% of 2017 GNI*.
- They pay effective tax rates of 0–2.5%. Irish Revenue quote an effective 2015 CT rate of 9.8%, The US Bureau of Economic Analysis gives an effective 2015 Irish CT rate of 2.5%. and the CT rates of Irish BEPS tools (0–2.5%). ()
Multinational job focus
Ireland's corporate BEPS tools emphasise job creation (either of Irish employees or of foreign employees to Ireland). To use Irish BEPS tools, and their ETRs of 0–2.5%, the multinational must meet conditions on the intellectual property ("IP") they will be using as part of their Irish BEPS tool. This is outlined in the Irish Finance Acts particular to each scheme, but in summary, the multinational must:
- Prove they are carrying out a "relevant trade" on the IP in Ireland (i.e. Ireland is not just an "empty shell" through which IP passes en route to another tax haven);
- Prove the level of Irish employment doing the "relevant activities" on the IP is consistent with the Irish tax relief being claimed (the ratio has never been disclosed);
- Show that the average wages of the Irish employees are consistent with such a "relevant trade" (i.e. must be "high-value" jobs earning +€60,000–€90,000 per annum);
- Put this into an approved "business plan" (agreed with Revenue Commissioners and other State bodies, such as IDA Ireland), for the term of the tax relief scheme;
- Agree to suffer "clawbacks" of the Irish tax relief granted (i.e. pay the full 12.5% level), if they leave before the end plan (5 years for schemes started after February 2013) or 2.4%
- Google employed 2,763 people in 2014, and at a €100,000 cost per employee gave a €276 million wage roll on Google 2014 Irish profits of €12 billion, or 2.3%
To the extent that the Irish jobs are performing real functions (i.e. the function is not replicated elsewhere in the Group), the cost is not an "employment tax", however, at worst case, the U.S. multinational should incur an aggregate effective Irish corporation tax of 2–6% (actual Irish BEPS tool tax of 0–2.5%, plus Irish employment costs of 2–3%). Therefore, as shown in , while Irish CT has consistently been between 10 and 15% of Total Irish Tax, the additional employment contribution made by U.S. multinationals in Ireland, has led to strong growth in overall Irish Total Taxes.
Top 50 Irish corporations
The top 50 Irish companies, ranked by 2017 Irish registered revenues, are as follows:
{| class="wikitable sortable" style="text-align:left"
|+ style="text-align: left;" |Table 1: Top 50 Irish companies by 2017 revenue booked in Ireland (€ billions)
!style="width:120px;text-align:left"|Sector<br />(if non-IRL) In February 1994, the U.S. tax academic, James R. Hines Jr. identified Ireland as one of seven "major" tax havens for U.S. multinational profit shifting. During the 2014–2016 EU investigation into Apple's Irish BEPS tools, it was revealed that the Irish Revenue Commissioners had been issuing private rulings on Apple's Double Irish BEPS tools as far back as 1991; it was not until January 2018, that economists could confirm Apple as the source of "leprechaun economics", and that at $300 billion, was the largest BEPS action in history. In March 2018, the Financial Stability Forum showed Ireland's Debt–based BEPS tools made it the 3rd–largest Shadow Banking OFC in the world. In June 2018, tax academics showed Irish IP–based BEPS tools were artificially distorting aggregate EU GDP data, and had artificially inflated the EU–U.S. trade-deficit. In June 2018, tax academics confirmed IP–based BEPS tools had made Ireland the world's largest tax haven, and that the $106 billion of annual corporate profits shielded by Irish BEPS tools, exceeded the BEPS flows of the entire Caribbean tax haven system. This is the reason why most U.S. multinationals in Ireland are from the two largest IP–industries, namely technology companies and life sciences;
Ireland describes its IP–based BEPS tools as being part of its "knowledge economy"; however, U.S. tax academics describe IP as "the leading tax avoidance vehicle in the world". Despite its small size, Ireland ranks 6th in the 2018 U.S. Global Intellectual Property Center (GIPC) league table of the top 50 global centres for IP–legislation, and 4th in the important Patents sub-category (see graphic opposite).
While Ireland's most important BEPS tools are all IP–based, Ireland has other BEPS tools including Transfer Pricing–based BEPS tools (e.g. contract manufacturing), and Debt–based BEPS tools (e.g. the Irish Section 110 SPV, and the Irish L-QIAIF).
"Worldwide Tax" systems
thumb|OECD "worldwide tax" countries
Ireland's IP–based BEPS tools have only attracted material operations from multinationals whose home jurisdiction had a "worldwide tax" system; namely, the U.K pre–2009, and the U.S. pre–2018 (see Table 1). Ireland has not attracted material technology or life sciences multinationals (outside of a specific plant, under its TP–based Contract Manufacturing BEPS tool), whose home jurisdiction operates a "territorial tax" system. , there are only 6 remaining jurisdictions in the world who operate a "worldwide tax" system, of which Ireland is one (namely, Chile, Greece, Ireland, Israel, South Korea, Mexico).
In 2016, U.S. tax academic, James R. Hines Jr. showed firms from "territorial tax" systems make little use of corporate–tax havens, as their tax code applied lower rates to foreign-sourced profits.
In 2014, the U.S. Tax Foundation, reported on how the UK had effectively stopped UK corporates inverting to Ireland, by switching the UK corporate tax-code to a "territorial system" over 2009–2012. In 2018, Shire agreed to a lower $64 billion bid from Japanese pharmaceutical Takeda, who confirmed they would not be executing a tax inversion to Ireland (Japan's headline corporate tax rate is 35%), which was attributed to the fact that Japan, like the UK, switched to a "territorial tax" system in 2009.
An "artificially inflated GDP-per-capita statistic", is a known feature of tax havens, due to the BEPS flows. However, in December 2017, Eurostat reported that Modified GNI* did not remove all of the distortions from Irish economic data.
thumb|Ireland has one of the most disparate GNI to GDP ratios in the EU.
By September 2018, the Irish Central Statistics Office ("CSO") reported that Irish GDP was 162% of Irish GNI* (i.e. BEPS tools had artificially inflated Ireland's economic statistics by 62%). Irish public indebtedness changes dramatically depending on whether debt-to-GDP, debt-to-GNI* or debt-per-capita is used; the debt-per-capita metric removes all distortion from Irish BEPS tools and implies a level of Irish public-sector indebtedness that is only surpassed by Japan.
{| class="wikitable sortable" style="text-align:left"
|+ style="text-align: left;" |Table 2: Irish National Income and Expenditure 2017 (measured in 2018 euros) 2009–2017
|-
!rowspan="2" style="width:80px;text-align:left"|Year<br />
!colspan="2" style="width:80px;text-align:left"|Irish GDP<br />
!colspan="2" style="width:80px;text-align:left"|Irish GNI*<br />
!rowspan="2" style="width:80px;background:#cfc;text-align:left"|Irish<br />GDP/GNI*<br />Ratio
!rowspan="2" style="width:80px;background:#cfc;text-align:left"|EU–28<br />GDP/GNI<br />Ratio
|-
!style="width:80px;text-align:left"|(€ bn)
!style="width:80px;text-align:left"|YOY<br />(%)
!style="width:80px;text-align:left"|(€ bn)
!style="width:80px;text-align:left"|YOY<br />(%)
|-
|2009||170.1||-||134.8||-||126% ||100%
|-
|2010||167.7||-1.4%||128.9||-4.3%||130%||100%
|-
|2011||171.1||2.0%||126.6||-1.8%||135%||100%
|-
|2012||175.2||2.4%||126.4||-0.2%||139%||100%
|-
|2013||179.9||2.7%||136.9||8.3%‡||131%||100%
|-
|2014||195.3||8.6%||148.3||8.3%‡||132%||100%
|-
|2015||262.5†||34.4%||161.4||8.8%‡||163%||100%
|-
|2016||273.2||4.1%||175.8||8.9%‡||155%||100%
|-
|2017||294.1||7.6%||181.2||3.1%||162%||100%
|}
(†) The Central Statistics Office (Ireland) revised 2015 GDP higher in 2017, increasing Ireland's 2015 GDP growth rate from 26.3% to 34.4%.<br />
(‡) Eurostat show that GNI* is also still distorted by certain BEPS tools, and specifically contract manufacturing, which is a significant activity in Ireland. and the EU discovered Irish Revenue rulings on the Double Irish for Apple in 1991. Almost every major U.S. technology and life sciences firm has been associated with the Double Irish. In 2018, tax academics showed the Double Irish shielded $106 billion of mainly U.S. annual corporate profits from both Irish and U.S. taxation in 2015. As the BEPS tool with which U.S. multinationals built up untaxed offshore reserves of circa US$1 trillion from 2004 to 2017, the Double Irish is the largest tax avoidance tool in history. In 2016, when the EU levied a €13 billion fine on Apple, the largest tax fine in history, it covered the period 2004–14, during which Apple paid an Irish ETR of <1% on €110.8 billion in Irish profits. Despite the loss of taxes to the U.S. exchequer, it was the EU Commission that forced Ireland to close the Double Irish from January 2015; with closure to existing users by 2020.
Single Malt
In an October 2013 interview, PwC tax partner Feargal O'Rourke ("architect" of the Double Irish, see above), said that: "the days of the Double Irish tax scheme are numbered". In October 2014, as the EU forced the Irish State to close the Double Irish BEPS tool, The Irish media picked up the article, but when an Irish MEP notified the then Finance Minister, Michael Noonan, he was told to "Put on the green jersey". A November 2017 report by Christian Aid, titled Impossible Structures, showed how quickly the Single Malt BEPS tool was replacing the Double Irish. The report detailed Microsoft's and Allergen's schemes and extracts from advisers to their clients. and that the Irish State were keeping the matter, "under consideration". On the same day the closure was announced, LinkedIn in Ireland, identified as a user of the Single Malt tool in 2017, announced in filings that it had sold a major IP asset to its parent, Microsoft (Ireland). In July 2018, it was disclosed in the Irish financial media that Microsoft (Ireland) were preparing a restructure of their Irish BEPS tools into a CAIA (or Green Jersey) Irish tax structure. Whereas the Double Irish and Single Malt BEPS tools enable Ireland to act as a confidential "Conduit OFC" for rerouting untaxed profits to places like Bermuda (i.e. it must be confidential as higher-tax locations would not sign full tax treaties with locations like Bermuda), the CAIA BEPS tool, enables Ireland to act as the "Sink OFC" (i.e. the terminus for untaxed profits, like Bermuda).
CAIA uses the accepted tax concept of providing capital allowances for the purchase of physical assets. However, Ireland turns it into a BEPS tool by providing the allowances for the purchase of intangible assets, and particularly intellectual property assets; and critically, where the owner of the intangible assets is a "connected party" (e.g. a Group subsidiary, often located in a tax haven); and has valued the assets for the inter-Group transaction using an Irish IFSC accounting firm.
CAIA capitalises the tax shield of the Double Irish, and thus materially increases the distortion of the Irish national accounts. This was shown in July 2016 when the Irish CEO had to restate Irish 2015 GDP by 34.4% due to Apple's Q1 2015 restructure into a CAIA BEPS tool. A June 2018 report by the EU Parliament's GUE–NGL body showed that Apple doubled the Irish corporate tax shield of its CAIA BEPS tool by financing the acquisition of the IP via Jersey (the report called the CAIA BEPS tool, the Green Jersey). Whereas the Double Irish and Single Malt have an ETR of less than 1%, the ETR of the CAIA BEPS tool ranges from 0% to 2.5% depending on the date on which the CAIA tool was started (see effective tax rates).
The KDB behaves like a CAIA BEPS scheme with a cap of 50% (i.e. similar to getting 50%–relief against capitalised IP, for a net effective Irish tax rate of 6.25%). As with the CAIA BEPS scheme, the KDB is limited to specific "qualifying assets", however, unlike the CAIA tool, these are quite narrowly defined by the 2015 Finance Act.
The Irish KDB was created with tight conditions to ensure OECD compliance and thus meets the OECD's "modified Nexus standard" for IP. This has drawn criticism from Irish tax advisory firms who feel that its use is limited to pharmaceutical (who have the most "Nexus" compliant patents/processes), and some niche sectors.
It is expected these conditions will be relaxed over time through refinements of the 2015 Finance Act; a route taken by other Irish IP–based BEPS tools:
- Double Irish – the unusual definition of tax residence was embedded in the 1997 Taxes and Consolidation Act (TCA), and expanded in 1999–2003 Finance Acts.
- Single Malt – takes the Double Irish tax-residence concept around "management and control", and worded directly into specific bilateral tax treaties (Malta, UAE).
Debt–based BEPS tools
Section 110 SPV
A Section 110 Special Purpose Vehicle ("SPV") is an Irish tax resident company, which qualifies under Section 110 of the 1997 Irish Taxes Consolidation Act ("TCA"), by virtue of restricting itself to only holding "qualifying assets", for a special tax regime that enables the SPV to attain full tax neutrality (i.e. the SPV pays no Irish corporate taxes). It is a major Irish Debt–based BEPS tool.
Section 110 was created to help IFSC legal and accounting firms compete for the administration of global securitisation deals. While they pay no Irish taxes, they contribute circa €100 million annually to the Irish economy from fees paid to the IFSC legal and accounting firms. IFSC firms lobbied the Irish State for successive amendments to the Section 110 legislation, so that by 2011, Section 110 had become an Irish Debt–based BEPS tool, for avoiding tax on Irish and international assets.
In 2016, it was discovered that U.S. distressed debt funds used Section 110 SPVs, structured by IFSC professional service firms, to avoid material Irish taxes on domestic Irish activities, while State-backed mezzanine funds were using Section 110 SPVs to lower their clients Irish corporate tax liability. Academic studies in 2017 note that Irish Section 110 SPVs operate in a brass plate fashion with little regulatory oversight from the Irish Revenue or Central Bank of Ireland, and have been attracting funds from undesirable activities (e.g. sanctioned Russian banks).
These abuses were discovered because Section 110 SPVs must file public accounts with the Irish CRO. In 2018 Central Bank of Ireland overhauled the little-used L–QIAIF vehicle, so that is now offers the same tax benefits on Irish assets held via debt as the Section 110 SPV, but without having to file Irish public accounts.
Stephen Donnelly TD estimated that U.S. funds would avoid €20 billion in Irish taxes from 2016 to 2026 on circa €40 billion of Irish investments (2012–2016), by using Section 110 SPVs.
L–QIAIF
thumb|Sales price as multiple of the cost of build for a prime office in Dublin, versus other EU-28 countries (2016)
thumb|Sales price of Dublin prime office versus other EU-28 countries (2016)
The Irish QIAIF regime is exempt from all Irish taxes and duties (including VAT and withholding tax), and apart from the VCC wrapper, do not have to file public accounts with the Irish CRO. This has made QIAIF an important "backdoor" out of the Irish corporate tax system. The most favoured destination is to Sink OFC Luxembourg, which receives 50% of all outbound Irish foreign direct investment ("FDI). QIAIFs, with Section 110 SPVs, have made Ireland the 3rd largest Shadow Banking OFC.
When the Section 110 SPV Irish domestic tax avoidance scandals surfaced in late 2016, it was due to Irish financial journalists and Dáil Éireann representatives scrutinising the Irish CRO public accounts of U.S. distressed firms. In November 2016 the Central Bank began to overhaul the L-QIAIF regime. In early 2018, the Central Bank upgraded the L-QIAIF regime so that it could replicate the Section 110 SPV (e.g. closed end debt structures), but without needing to file public CRO accounts. In June 2018, the Central Bank announced that €55 billion of U.S. distressed debt assets had transferred out of Section 110 SPVs.
It is expected that the Irish L–QIAIF will replace the Irish Section 110 SPV as Ireland's main Debt–based BEPS tool for U.S. multinationals in Ireland.
The ability of foreign institutions to use QIAIFs (and particularly the ICAV-wrapper) to avoid all Irish taxes on Irish assets has been blamed for the bubble in Dublin commercial property (and, by implication, the Dublin housing crisis). This risk was highlighted in 2014 when Central Bank of Ireland consulted the European Systemic Risk Board ("ESRB") after lobbying to expand the L-QIAIF regime.
TP–based BEPS tools
Ireland's transfer pricing ("TP") based BEPS tools are mostly related to contract manufacturing. By refusing to implement the 2013 EU Accounting Directive (and invoking exemptions on reporting holding company structures until 2022), Ireland enables their TP and IP–based BEPS tools to structure as "unlimited liability companies" (ULCs) which do not have to file public accounts with the Irish CRO. In spite of this, many Irish IP–based BEPS tools are so large that tax academics have been able to separate out their scale from filed group accounts (e.g. work of Gabriel Zucman). However, Irish TP–based BEPS tools are smaller, and therefore harder to pick out from a listed multinational's group accounts. In addition, the Irish State, to help obfuscate the activities of the larger and more important IP–based BEPS tools, sometimes present their data as manufacturing data. It is generally regarded that Ireland's main TP–based BEPS tool users are the life sciences manufacturers.
Effective tax rate (ETR)
Background
The headline tax rate is the rate of taxation that is applied to the profits that a tax-code deems to be taxable after deductions. The effective tax rate is the rate of taxation implied by the actual quantum of tax paid versus profits before all deductions are applied. The gap between the Irish corporate headline rate of 12.5%, and the much lower Irish corporate effective rate of 2–4%, is a source of controversy:
The Irish State asserts Ireland's ETR similar to the Irish headline CT rate of 12.5%. This is an important issue as Ireland's BEPS tools, the core of Ireland's , rely on having a global network of full bilateral tax treaties that accept Ireland's BEPS tools; major economies do not sign full bilateral tax treaties with known tax havens (e.g. Bermuda or Jersey). When the EU Commission published their findings on Apple's Irish BEPS tools in 2016 (see below), Brazil became the first G–20 economy to blacklist Ireland as a tax haven, and suspended the Brazil–Ireland bilateral tax treaty.
In 2014, Ireland refused to implement the 2013 EU Accounting Directive, and invoked exemptions on reporting holding company structures until 2022, so that multinationals can register as Irish "unlimited liability companies" (ULCs), which do not have to file public accounts with the Irish CRO.
Independent research
thumb|upright=1|"Effective corporate tax rates" of US multinationals in various jurisdictions (2016 [[Bureau of Economic Analysis|BEA–NBER) James R. Hines Jr., published the most cited academic paper on tax havens, The report featured research into the "architect" of the Double Irish BEPS tool, PWC tax partner Feargal O'Rourke, who Bloomberg noted was regarded as a "hero" in Ireland. used U.S. Bureau of Economic Analysis data filed by U.S. multinationals, to estimate that the effective tax rate of U.S. multinationals in Ireland for 2011 was 2.2% to 3.8%.
|In November 2014, the Tax Justice Network, in their Ireland Country Report from the 2013 Financial Secrecy Index, said the Irish State's claims that the effective tax rate was 12.5% were "misleading", and that Ireland's corporate ETR was between 2.5% to 4.5%, depending on the various assumptions used.
|In November 2017, Irish economist David McWilliams writing in The Irish Times quoted that the U.S. BEA statistics implied U.S. multinationals in Ireland paid an effective tax rate of 3.27% on Irish registered pre-tax income of $106,789 million in 2013, and 3.38% on Irish registered pre-tax income of $108,971 million in 2014, due to "a myriad of loopholes to avoid even our own low rates of tax".
|In June 2018, 24 years after the 1994 James R. Hines paper into global tax havens, French tax economist Gabriel Zucman, with the NBER, in his study into the BEPS flows of global tax havens titled: The Missing Profits of Nations; also estimated in Appendix I of the study that Ireland's aggregate effective corporate tax rate was 4% (see graphic); the lowest rate of all jurisdictions (see graphic).
Filed accounts
Over the years, the largest U.S. multinationals in Ireland, who are both Ireland's largest companies and pay most of Ireland's corporation tax (see low tax economy),
- Google <1% (4th largest Irish company,
- Facebook <1% (9th largest Irish company,
- Oracle <1% (12th largest Irish company,
Marketing brochures
Irish BEPS tools are not overtly marketed as brochures showing near-zero effective tax rates would damage Ireland's ability to sign and operate bilateral tax treaties (i.e. higher-tax countries do not sign full treaties with known tax havens). However, since the Irish financial crisis, some Irish tax law firms in the IFSC produced CAIA brochures openly marketing that its ETR was 2.5%.
Apple investigations
Apple is Ireland's largest company, with Irish 2017 revenues that exceed the combined Irish 2017 revenues of the next 5 largest Irish companies added together. Apple has been in Ireland since at least December 1980, when it opened its first Irish plant in Holyhill, in Cork.
In May 2013, Apple's Irish tax practices were questioned by a U.S. bipartisan investigation of the Senate Permanent Subcommittee on Investigation. The investigation aimed to examine whether Apple used offshore structures, in conjunction with arrangements, to shift profits from the U.S. to Ireland. Senators Carl Levin and John McCain drew light on what they referred to as a special tax arrangement between Apple and Ireland which allowed Apple to pay a corporate tax rate of less than 2%. The investigation labelled Ireland as the "holy grail of tax avoidance".
In June 2014, the EU Commission launched an investigation into Apple's tax practices in Ireland for the period 2004–2014, whose summary findings were published on 30 August 2016 in a 4–page press release;
In July 2020, the European General Court (EGC) ruled that the EU Commission "did not succeed in showing to the requisite legal standard" that Apple had received tax advantages from Ireland, and overturned the findings against Apple.
Irish State rebuttals
In February 2014, as a result of Bloomberg's Special Investigation and Trinity College Professor Dr. Jim Stewart's ETR calculations (see above), the "architect" of Ireland's Double Irish BEPS tool, PricewaterhouseCoopers tax-partner Feargal O'Rourke, went on RTÉ Radio to state that: "there was a hole the size of the Grand Canyon", in the analysis. O'Rourke also referenced the PricewaterhouseCoopers/World Bank survey that Ireland's ETR was circa 12%.
In December 2014, the Irish Department of Finance, gathered a panel of Irish experts (but no international experts) to estimate Irish corporate ETR for the Committee on Finance Public Expenditure. the Irish Revenue Commissioners stated that they: "had collected the full amount of tax that was due from Apple in accordance with the Irish law".
In December 2017, the Department of Finance published a report they commissioned on the Irish corporate tax code by UCC economist, Seamus Coffey. Ireland's corporate tax code has a holding company regime that enables the foreign multinational's new Irish–based legal headquarters to gain full Irish tax-relief on Irish withholding taxes and payment of dividends from Ireland.
Almost all tax inversions to Ireland have come from the US, and to a lesser degree, the UK (see below). The first US tax inversions to Ireland were Ingersoll Rand and Accenture 2009. The US tax code's anti-avoidance rules prohibit a US company from creating a new "legal" headquarters in Ireland while its main business is in the US (known as a "self-inversion").
Once inverted, the US company can use Irish multinational BEPS strategies to achieve an effective tax rate well below the Irish headline rate of 12.5% on non–U.S. income, and also reduce US taxes on US income. In September 2014, Forbes magazine quoted research that estimated a US inversion to Ireland reduced the US multinational's aggregate tax rate from above 30% to well below 20%.
In July 2017, the Irish Central Statistics Office (CSO) warned that tax inversions to Ireland artificially inflated Ireland's GDP data (e.g. without providing any Irish tax revenue).
U.S. inversions
Share of inversions
, Bloomberg ranks Ireland as the most popular destination for U.S. tax inversions, attracting almost a quarter of the 85 inversions since 1983:
{| class="wikitable" style="text-align:right"
|+ style="text-align: left;" |Destinations of U.S. Corporate Tax Inversions (1983–2018)
|-
!rowspan="2" style="text-align:left"|Destination
!rowspan="2" style="text-align:right"|Total
!colspan="2" style="text-align:left"|Last inversion
!rowspan="2" style="text-align:right"|Notable U.S. corporate tax inversions to the destination
|-
!style="text-align:right"|Year
!style="text-align:right"|Name
|-
|style="text-align:left"|Ireland||21||2016||Johnson Controls||Largest U.S. inversion in history, Medtronic (2015); plus 3rd Johnson (2016), 4th Eaton (2012), and 6th Perrigo (2013). All of the U.S. multinationals listed below are listed on stock exchanges and the Market Capitalisation is as per 21 November 2018. "Spin-off inversions" and "self-inversions" happen outside of the U.S. (e.g. the corporate/corporate parent had previously left the U.S.), and thus do not need an acquisition of an Irish—based corporate to execute the move to Ireland, as per U.S. tax code requirements (see above).
{| class="wikitable" style="text-align:right"
|+ style="text-align:left;" |History of U.S. Corporate Tax Inversions to Ireland (as at 21 November 2018)
|-
!colspan="4" style="text-align:left"|U.S. multinational
!colspan="3" style="text-align:left"|Irish inversion
!rowspan="2" style="text-align:right"|Current H.Q.
!rowspan="2" style="text-align:right"|Comment and reference
|-
!style="text-align:left"|Name
!style="text-align:right"|U.S. base
!style="text-align:right"|Mkt. Cap.<br />($ bn)
!style="text-align:right"|Left U.S.
!style="text-align:right"|Irish move
!style="text-align:right"|Irish target
!style="text-align:right"|Price<br />($ bn)
|-
|style="text-align:left"|Pfizer||New York||252.6||Aborted||Aborted||Actavis Plc/Allergan||160.0||New York||Pfizer aborted their 2016 inversion due to changes in the U.S. tax code.
|-
|style="text-align:left"|Adient Plc||Michigan||2.1||2016||2016||("Spin-off inversion")||—||Ireland||"Spin-off inversion" from Johnson / Tyco inversion (2016).
|-
|style="background:#cfc;text-align:left"|Medtronic Plc||Minnesota||124.5||2015||2015||Covidien plc||42.9||Ireland||Largest U.S. tax inversion in history.
|-
|style="text-align:left"|Horizon Pharma Plc||Illinois||3.4||2014||2014||Vidara Therapeutic||0.66||Ireland||Bought four other U.S. firms post-inversion.
|-
|style="text-align:left"|Endo International||Pennsylvania||2.8||2014||2014||Paladin Labs