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Ireland expected to dissolve 'Double Irish' tax loophole benefitting Apple, others

Source: European Commission

Last updated

After the European Union's antitrust watchdog pressured reform, Ireland's government is expected to announce changes to its tax residency policies, phasing out the popular multinational tax loophole employed by Apple to save billions of dollars.

According to two sources familiar with the matter, Ireland will "phase out" the well-known "Double Irish" tax arrangement large U.S. corporations like Apple and Google use to save billions of dollars on international profits, reports Reuters. The government is slated to make the announcement alongside a 2015 budget hearing on Tuesday.

The planned amendments involve tax residency for international corporations, which up to this point have taken advantage of complex international laws — particularly intra-state EU arrangements — to sidestep high tax rates.

In the case of the "Double Irish with a Dutch Sandwich" scheme, companies like Apple rely on current Irish law that views a company as a tax resident of the country from which it is managed, not incorporated. For Apple, the company used the intricate tax law and concessions made by the Irish government to declare its Cork headquarters as not being a tax resident of any country.

Applied to Apple's international operations, profits are directed to a subsidiary in Ireland. The 12.5 percent Irish tax rate is not applied ASI (Apple's business entity in Cork) because it is managed by Apple corporate in U.S. This also means the U.S. and other countries, like Australia, are also unable to levy taxes on Apple's Irish operations because ASI is out of their jurisdiction.

On the European side, Ireland has treaties with other EU countries that allows funds to pass across borders tax-free. Apple uses these arrangements to route international profits through the Netherlands (alternatively Singapore for Australian operations) back to ASI or another registered subsidiary as payments for assigned royalties. The final destination is a company registered in Ireland, but a tax resident of a tax haven like the Caribbean or Cayman Islands.

For its part, Ireland has at least made a showing of closing loopholes, with Finance Minister Michael Noonan vowing to make necessary amendments to the country's tax code after U.S. Senators John McCain and Carl Levin called for reform last year. Noonan made it illegal for corporations to not claim a tax domicile, but kept open a loophole that allowed these companies to effectively choose a resident country that best fits their needs.

With the supposed upcoming rule change, Ireland will automatically classify companies operating within its borders as tax residents "over time." The exact timeframe was not detailed, but the publication speculates companies already operating within Ireland will be granted a set period in which to rearrange accounting methods.

Joaquin Almunia, the European Commission's vice president and competition commissioner, stirred up action in late September with a letter saying his office suspects the Irish government's tax practices amount to illegal state aid. Almunia will end his term on Oct. 31, to be replaced by Denmark's former economy minister and known hardliner Margrethe Vestager.