Revelations of billions on euro passing through Dutch and Irish subsidiaries of Google and going to rest in the tax haven that is Bermuda will turn up the international heat yet again on the way big US companies have arranged their tax affairs.
Central to the Google transaction was the so-called double Irish, an arrangement which allows multinational subsidiaries to be incorporated here but tax resident elsewhere. Typically in this arrangement, dubbed the “double Irish/ Dutch sandwich”, revenues move from one Irish subsidiary through a Dutch company and back to an Irish subsidiary tax resident offshore.
The arrangement allows the company involved to minimise corporation tax payments and also to avoid withholding tax being applied in Ireland, and basically flushes revenues earned across Europe through Ireland and into offshore tax havens.
It is all perfectly legal – assuming the correct boxes are ticked along the way – and is based on a US tax provision which allows companies to avoid paying tax once cash remains offshore.
Ireland announced the abolition of the double Irish in the 2015 budget, though it remains in place for established companies up to 2020. In hindsight, Minister for Finance Michael Noonan will be glad he announced its abolition, but might wish he had not left so long a phase-out time for companies still here. It remains an exposure for Ireland in the international tax debate which is not going to go away, as exchequers across the world scrap for cash. The decision on Apple’s tax arrangements here, due shortly after the general election, will bring it all back into the spotlight.
For the multinationals and for Ireland the game is surely changing.
The political temperature remains high – tax inversions are an issue in the US presidential campaign– and the EU Commission and OECD remain on the case. Big US multinationals will now begin to see the more aggressive arrangements as a potential exposure for their corporate reputations and their investors. The fact it is “ legal” is not going to wash in the years ahead. Slowly but surely the big players are going to be paying a bit more tax.
