Ireland to Change Controversial Tax Rules in Response to Pressure

The government of Ireland vowed to change its controversial tax rules used by multinational corporations such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) to minimize their tax liabilities.

According to Finance Minister Michael Noonan, the proposed changes in the government’s tax rules ensure that Irish-registered companies will not become “stateless” when it comes to their tax residency. He plans to illegalize companies registered in the country without a tax residence elsewhere. He said companies can choose any country to become their tax residence including Bermuda, which has no tax jurisdiction.

He added that countries are becoming more aggressively competitive on mobile direct investments. He said, “I want Ireland to play fair—as we have always done—and I want Ireland to play to win.”

Ireland’s tax regulation was criticized and scrutinized by other countries such as the United States. In May, the United States Senate investigated the Apple’s alleged tax avoidance strategy through its subsidiary in Ireland. Apple CEO Tim Cook personally appeared during the Senate hearing and denied the allegations. He pointed out that the company paid all its tax liabilities to the U.S. government.

Back then, Finance Minister Noonan said Ireland “doesn’t want to become a whipping boy for misunderstandings” regarding the tax liabilities of Apple. Foreign Affairs and Trade Minister Eamon Gilmore also commented that Ireland should not be blamed for any loopholes in international tax rules used by companies.

Other countries had been pressuring Ireland to implement a more stringent tax rules for companies using loopholes to reduce their tax obligations.

Based on Ireland’s International Tax Strategy published on Tuesday, Finance Minister Noonan said the government aims to “provide a clear and accurate picture of its corporate tax regime.” According to him, the government’s corporate tax system is open, transparent, and all the rules are clearly set down in its national law, and its low corporate tax rate is the cornerstones of its strategy for attracting foreign direct investment.  Ireland is committed in maintaining is 12.5% tax rate on active trading income and 25% on passive non trading income for all domestic and international businesses.

Furthermore, he said that Ireland was one of the early participants to new international initiatives on automatic exchange tax information. It is the fourth country worldwide to sign the FATCA agreement with the United States. The country is also taking an active role against tax fraud and tax evasion as well as examining harmful tax practice in the European Union (EU).

The details of the changes that will be implemented by Ireland on its tax rules is still unclear and it will be published by the government as part of its budget bill on October 24.

Joe Tynan, an international tax partner at PricewaterhouseCoopers in Ireland opined that the new tax policy of the government might compel companies to change their structures, but their costs will probably the same. He said, “It is likely that companies will move their residency to countries with nil or low taxation. I think they will have to make changes, but they will be able to make those changes without incurring significant additional taxation.”