By: Madeline Lally
After ridding itself of its “double tax loophole,” Ireland will now have to fight for its life to remain an attractive location for large technology companies specializing in intellectual property, such as Apple and Google.
Ireland currently is home to what is called the “Double Irish Tax Loophole” whereby large corporations, especially technology companies, may funnel their intellectual property royalties into off-shore, low-tax havens. As long as a large multinational company is incorporated in Ireland, it may claim residency in another country where it operates a subsidiary in order to reap the tax benefits offered there. Corporations are eligible for this loophole as long as the subsidiary is controlled, operated, and managed outside of Ireland. However, as of January 1, 2015, this loophole will be eliminated and all corporations who seek to incorporate in Ireland will be forced to claim the Emerald Isle as their home for tax purposes as well. All corporations already incorporated in the country will be forced to claim the same by 2020.
This elimination of the double tax loophole is a result of the recent smack-down on corporate tax evasion by international governments around the world. Although a valiant effort to eliminate corporate corruption, such could have potentially catastrophic effects on Ireland’s domestic economy, as many multinational intellectual property corporations will likely no longer see the attraction in incorporating in Ireland. In an attempt to mitigate these negative effects, the Irish government has announced the establishment of the “Knowledge Development Box,” similar to the patent box used in the U.K. Such a box taxes intangibles, such as intellectual property royalties, at a much lower corporate tax rate than tangibles. This Knowledge Development Box may be Ireland’s economic saving grace as long as they are able to compete with the U.K.’s patent tax box which is currently taxing at the low rate of 10%. In order to remain competitive, the country must maintain its current 12.5% corporate tax rate while simultaneously offering a patent box of less than 10%- such requirements certainly will prove to be a daunting task for the domestic Irish government.
Bio: Madeline is a staff member of the Journal of High Technology Law. She is currently a 2L at Suffolk Law.