LONDON — Ireland on Tuesday responded to clamorous criticism of its business-friendly tax deals by closing a loophole used by multinational giants like Google.
The European Union and Obama administration have been vocal about tax-avoidance strategies of multinationals and the countries that enable them. The European Commission is investigating relationships between multinationals and perceived tax havens like Ireland, Luxembourg, and the Netherlands.
Ireland has based much of its economic growth and jobs strategy on its low corporate tax rate and other incentives that enticed companies like Google, Apple, Microsoft, and Abbott Laboratories.
But Ireland’s policy change won’t necessarily make the country any less alluring. For one thing, the government isn’t touching the tax rate. And the Irish tax strategies that enable Apple to potentially avoid billions in taxes over the years — part of a separate investigation by the European Commission — do not appear to involve the tax loophole the Irish government says it will close.
“I am skeptical as to how big a deal this really is,” said Crawford Spence, an accounting professor in Coventry, England.
The government is phasing out the “double Irish” provision. It allows corporations with operations in Ireland to make royalty payments for intellectual property to a separate Irish-registered subsidiary. That subsidiary, though incorporated in Ireland, typically has its home in a country with no corporate income tax.
Take Google. Its Dublin headquarters are its main hub outside the United States. A Dublin-based subsidiary for Google generates revenue and then pays it in royalties to a separate Google unit that is registered in Ireland but is resident in Bermuda for tax purposes. Reuters reported Adobe and Yahoo are also among the multinationals with Irish-registered companies that are not tax residents of Ireland.
“Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries,” said Michael Noonan, Ireland’s finance minister.
“I am abolishing the ability of companies to use the ‘double Irish’ by changing our residency rules to require all companies registered in Ireland to also be tax-resident.”
Google declined to comment on the double-Irish technique. “As we’ve always said, it’s for governments to decide the law and for companies to comply with it,” Google said.