Thousands of tech jobs at risk over tax loophole threat
A major report was ordered by world leaders amid growing concern about international schemes to avoid tax.
It throws the spotlight firmly on Ireland, where about 150,000 people are employed by multinationals, many of them leading technology or finance firms.
The Paris-based Organisation for Economic Co-operation and Development (OECD) unveiled proposals to eliminate gaps in global rules that allowed firms to legally shave billions from their tax bills.
Ultimately, its recommendations are likely to spell an end to the controversial ‘Double Irish’ scheme, used to route global profits through companies here then on to tax havens.
The Government has been under pressure over tax arrangements here, as global leaders including Barack Obama voiced concern about multinationals’ tax practices.
Finance Minister Michael Noonan backed the OECD report and is now weighing up another clampdown on firms that use Ireland to deliberately reduce corporate tax bills.
Mr Noonan will meet officials next week to discuss the OECD recommendations for a co-ordinated international approach to combat tax avoidance by multinationals.
Government sources say the minister is considering further measures to be introduced in the Budget, to reduce the ability of companies to avoid tax.
“The OECD report doesn’t force his hand. He is considering whether changes need to be made,” a source said.
But Trinity College Professor of Finance James Stewart, who last hit headlines when he claimed US multinationals here paid as little as 2.2pc corporation tax, said the OECD rules could ultimately lead some firms to pull elements of their operations out of Ireland.
He said the OECD throws into question the type of industrial policy pursued by Ireland.
“Some companies are here because they have very strong local linkages, they’re strongly embedded, they’re less likely to move,” he said. “But there are some companies here that are not very strongly embedded. They’re dependent on a skilled supply of people who speak foreign languages, which we’re hopeless at.
“They’re dependent on getting access to people with computer skills, again there’s a shortage in that area. Those kind of companies are vulnerable to moving part of their operations outside Ireland. It could lead to certain job losses.”
Padraig Cronin, head of tax and legal services at Deloitte Ireland, similarly said some multinationals “in the margins” could opt to go elsewhere.
“They’re the ones you have to be vigilant around as they may say: ‘What do other countries like the UK and the Netherlands have to offer?’
“They might say: ‘I won’t stay with Ireland now, I’ll go somewhere else’,” he said.
“They’re the ones you have to be vigilant in relation to.”
But the IDA said Ireland will continue to remain an attractive hub for foreign direct investment.
Tanaiste Joan Burton said the Government was “fully supportive” of the OECD moves.
She suggested there would be no major changes until after the international body’s final report, expected next year.
“That is not going to conclude I think, until the end of next year. We’re fully supportive,” she said.
Jobs Minister Richard Bruton said there would be new opportunities for Ireland once the plans come into force.
“There will be a series of changes that we will have to implement collectively, you will see a different international approach, and I think Ireland’s objective is to make sure that we continue to be competitive,” he said.
The OECD announced a series of measures that, if implemented, could stop companies from employing many commonly used practices to shift profits into tax havens.
The OECD detailed its recommendations in seven areas, including rules to prevent the abuse of international tax treaties, country-by-country reporting of revenues, profits, taxes paid for multinationals, and measures to deal with transfer pricing.
The Irish Government officially supports moves to close tax loopholes following a chorus of international criticism.
“The reports are a further step towards multilateral co-operation on countering base erosion and profit shifting by multinationals,” said Mr Noonan.
Ireland hit the headlines for all the wrong reasons last year when an investigation by the US Senate found that computer giant Apple was paying hardly any tax on its income, thanks in large part to Ireland’s assessment of the tax bills of Apple subsidiaries based here.
The European Commission is probing Apple’s tax arrangements with Ireland.
Large budget deficits and public anger at inter-company structures designed to channel profits into tax havens have prodded governments to act.
Google, Apple and others say they follow the law wherever they operate and pay what tax is due, but they also have a duty to shareholders to organise their affairs in a tax-efficient way.
Tax experts said the OECD proposals will have a big impact on companies here.
Joe Tynan, PwC Ireland Tax Partner, said: “This could impact Ireland, which is home to companies which service the European market from here.”
Peter Vale, Tax Partner at Grant Thornton, said significant changes to the global tax landscape look inevitable.
“From Ireland’s perspective, the project offers significant opportunity in that one of its key aims is to align taxable profits with substance.
“As multinational groups operating in Ireland employ large numbers here, such groups will be incentivised to increase their activities in Ireland, thus lending support to their existing tax structure.”
Deloitte’s Padraig Cronin warned against the Government taking unilateral action, saying the areas of interest for Ireland remain in discussion.
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