Ireland to close 'Double Irish' tax loophole in 2015, firms currently using tactic get grace period until 2020

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As expected, Ireland's Finance Minister Michael Noonan on Tuesday announced a planned end to tax breaks fostering the so-called "Double Irish" accounting scheme, which has been used by multinational corporations like Apple to save billions of dollars.

According to the New York Times, Ireland will close the loophole by 2015 for new companies, while those currently leveraging the strategy will have until 2020 to find alternate means of accounting. In other words corporations like Apple and Google will have until December 2020 to find another country with favorable tax provisions.

"Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries," Noonan said, addressing the Irish Parliament. "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."

At its most basic level, the "Double Irish" provision allows companies with operations in Ireland to route profits to another Irish subsidiary, which has tax residency in a tax-free nation. Companies like Apple and Google assign patents to these subsidiaries, allowing the free flow of profit on royalties to tax havens such as the Caribbean.

In Apple's case, another fold is introduced when international profits are piped through another subsidiary in the Netherlands before being routed through the Irish subsidiary. Ireland and the Netherlands hold treaties that allow certain EU states to pass funds across borders tax free. This added step begets the name "Double Irish with a Dutch Sandwich."

Source: European Commission

Prior to today's announcement, Ireland was being pressured by the European Commission to end the "Double Irish," saying that it found the country's tax arrangements to be the equivalent of illegal state aid.

However, along with today's announcement of a slow tax loophole phase-out, Ireland revealed an upcoming plan called the Knowledge Development Box, which is designed to lower taxes in a bid to retain at least a few companies thinking about leaving. The practice of employing "patent boxes" is well known in Europe and allows companies based in participating countries to apply for lower rates on profits resulting from certain designated intellectual property. Ireland did not reveal the actual rates for its patent box, but Noonan said to expect a "low, competitive and sustainable tax rate."

EU states have long courted multinational companies to set up bases of operation within their borders to drive job creation and spur on economic growth. Ireland became a hot bed of activity for U.S. tech companies looking to escape high corporate taxes levied by their home country after the "Double Irish" accounting principle was discovered. According to The Times, Ireland claimed some 161,000 employees worked at 1,100 international companies ​in 2013, with half of those corporations coming from America and about 60 percent of all employees working in the tech industry.