Amazon had sales income of €44bn in Europe in 2020 – but paid no corporation tax. The head office spheres in downtown Seattle.
Governments around the world lose $245 billion every year to corporate tax havens, according to the London-based Tax Justice Network advocacy group. To combat this 130 countries signed up to a 15% global minimum tax rate on October 8 – but experts say that loopholes still exist.
Really? Even in Ireland?
Ireland has benefitted hugely from a low tax regime. Multinational companies line Dublin’s Liffey River.
The Organization for Economic Cooperation and Development, which led the negotiations, said the new minimum tax rate would apply to companies with annual revenue of more than 750 million euros ($866 million). A smaller group of the largest multinationals — those with annual turnover of 20 billion euros ($23 billion) and profit margins above 10% would have to pay taxes in countries where they sell their products or services. Together this would generate around $150 billion in additional annual global tax revenue.
Tom Bergin quibbles. Writing from Dublin on December 3, he says that some companies could still use Ireland to reduce their tax bills even after the agreement takes effect, according to tax specialists and a Reuters’ review of corporate filings.
That’s because the new agreement won’t stop companies benefiting from a strategy widely implemented in recent years that reduces taxes over a period of up to a decade or more. Ireland’s relatively generous tax allowances permit multinationals with a presence in the country to sell intellectual property, such as patents and brands, from one subsidiary to another to generate deductions that can be used to shield future profits from tax.
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The Irish finance ministry said Ireland’s tax treatment of intellectual property transactions is in line with other OECD countries. What impact would selling IP from one subsidiary to another have on your tax commitments? Check it out for yourself with the What If? feature in Forecast 5. It shows the consequences of any changing business situation, empowering you to make informed decisions quickly so you can plan wisely.
In response to Reuters’ questions, the OECD acknowledged that companies could continue to benefit from profit-shifting strategies already in place but that it expects companies to be unable to build up such tax shields in the future. The approach typically relies on a company also having a subsidiary in a country with a corporate income-tax rate of zero, such as Bermuda, that enables the company to conduct the sale tax free. By phasing out zero-tax jurisdictions for multinationals, the OECD expects the global minimum tax of 15% will make the strategy no longer attractive.
“We’re trying to design rules for the future,” said John Peterson, an OECD official.
Peterson added that the OECD can’t be certain how each country’s rules would interact with the global minimum tax. But he said the OECD is confident that abuses will be limited by a requirement that countries calculate taxable income in accordance with accounting rules.
So what’s taxable?
Tax specialists say the deal’s impact remains unclear because key details are yet to be agreed, including how to calculate the pot of profit that is to be taxed. Countries are currently debating carve-outs for certain tax breaks. In addition, jurisdictions could retain wide latitude in how they allow companies to calculate taxable income, the specialists said.
“Where there isn’t accounting consistency, there is scope for gaming,” said Nicholas Gardner, a tax partner at law firm Ashurst in London.
The new rules are expected to be finalized next year and require lawmaker approval in some jurisdictions. That includes the United States, where several top Republican politicians have voiced opposition to the deal.
Tax shield
International pressure forced Ireland in recent years to phase out one of the world’s best-known corporate-tax loopholes, known as the “double Irish.”’ In response, companies have increasingly accumulated tax deductions known as capital allowances via intra-group sales of intellectual property, according to tax advisors, economists and company filings.
Since 2015, multinationals have moved hundreds of billions of euros worth of intellectual property into Ireland, economists say. This has led to vast annual tax deductions for foreign companies related to so-called intangible assets—more than 45 billion euros in 2019 up from under 2.7 billion euros in 2014, according to data from Ireland’s tax authority. The data doesn’t break down what portion of those deductions were related to intellectual-property transactions within a corporation.
“Virtually every multinational has moved intellectual property,” said Christopher Sibley, a senior statistician at Ireland’s Central Statistics Office.Wealthy countries are to be the biggest beneficiaries of the deal, the Wall Street Journal reported, citing an analysis that the U.S. will raise tax revenues 15 times that of China. How will our government spend its share of $150 billion and what can you do to benefit? Turn again to Forecast 5 and play out some “What If?” scenarios with this easy-to-use budgeting and forecasting tool.
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