Ireland yesterday called for an international clampdown on multinationals shifting profits around the world to avoid tax, after criticism that Irish loopholes helped technology giant Apple to shrink its tax bill.
A US Senate investigation into the tax affairs of the maker of iPhones, iPads and Mac computers has shone an uncomfortable spotlight on Ireland’s tax regime and forced the Government to defend itself against accusations of being Europe’s onshore tax haven.
Other European governments, notably France, have previously criticised Ireland’s low rate of corporation tax –12.5 per cent – but the revelations from Washington focus on loopholes in the Irish tax code that are more difficult to defend.
Richard Bruton, the minister in charge of attracting foreign companies to Ireland, admitted that companies need to be reined in.
“They play the tax codes one against the other; that is tax planning, and I think we do need international cooperation through the OECD to deal with the aggressive nature of that,” he told state broadcaster RTE.
“Tax has always been an element of the Irish offering, and this will continue to be so, but what you have to avoid is what is known as harmful tax competition. We scrupulously avoid that.”
The US investigation showed that Apple had paid just two per cent tax on $74 billion in overseas income, largely helped by Irish tax law, which allows companies to be incorporated in the country without being tax resident. Britain had a similar rule but changed it over 20 years ago to stop tax avoidance.
Unlike Britain, however, Ireland is heavily dependent on foreign companies such as Google, Pfizer and Intel for employment – 150,000 of a labour force of around two million – and for its much-vaunted economic model of export-led growth.
While Ireland has successfully repelled attacks on its corporate tax rate from European neighbours, US pressure is more difficult to ignore.
“In the long run, the US Congress, if they wanted to, could wipe out those 150,000 real jobs, and we don’t want to provoke people by over-egging it, by doing things that are clearly upsetting the US,” said John FitzGerald, a professor at the Economic and Social Research Institute (ESRI), an Irish think tank.