Offshore Financial Centers - Ireland
As part of a general response to the EU's initiative against 'harmful tax competition', Ireland installed or announced new tax regimes during 1999. Ireland has fought to offer a favorable tax regime. Even though the tax system has moved in line with general EU practice, the EU continues to pressure Ireland for taxation more favorable to the EU instead of a sovereign Ireland.
Under the Finance Bill, 1999, all Irish-incorporated companies became resident. However, there are a number of exceptions to the rule. Some of exceptions accommodate the situation of multinational companies (many American) who have established themselves in Ireland . The most important exceptions cover companies which are owned or controlled in a country with which Ireland has a Double Tax Treaty, and which have trading activity in Ireland.
Until 1998, the standard rate of corporation tax in Ireland was 32%. Following the Irish Government's agreement with the EU for a general rate of 12.5% beginning 1st January 2003, the rate to be applied to trading, income fell in stages between 1999 and 2003:
in the 1999 fiscal year the rate was 28%;
in the 2000 fiscal year the rate was 24%;
in the 2001 fiscal year the rate was 20%;
in the 2002 fiscal year the rate was 16%;
thereafter the rate has been 12.5%.
The 12.5% rate has come under fire from several quarters, most notably those within the European Commission urging Ireland to harmonize and conform to the European corporate tax base. However, the Irish government views their policy as a cornerstone of the Republic's economic success, and is unlikely to surrender without a long and bitter fight.
The rate applied to non-trading income is 25%. Capital gains, other than gains from development land, are included in a company's profits for corporation tax purposes and are charged taxes under a formula that normally means that the tax is paid at a rate equivalent to the standard rate of income tax.
In Ireland the main tax impinging on companies is corporation tax, which applies both to trading income and to capital gains. As a member state of the EU, Ireland applies the VAT directives; currently the rate of VAT is 21%. Stamp duties apply to some transactions. The Department of Finance, headed by the Minister for Finance has responsibility for the taxation system; day-to-day administration of the tax system is in the hands of the Revenue Commissioners, a division of the Ministry.
A report published in the journal Tax Notes stated that Ireland is a favorable country for U.S. corporations as an Offshore Financial Center .
The report found that profits made by U.S. companies in Ireland doubled from 1999 to 2002, while profits in the rest of Europe plunged. While Luxembourg showed greater profitability rates for U.S. corporations, Ireland has a much larger "real economy" and produced the greatest profitability.
The report also documented a huge shift in the movement of capital towards tax advantages. "In low-tax Ireland , for instance, profits of subsidiaries of U.S. multinationals have doubled in four years, from $13.4 billion to $26.8 billion. Profits from operations of U.S. multinationals in no-tax Bermuda have tripled, from $8.5 billion to $25.2 billion. Not surprisingly, those two tax jurisdictions rank as the number one and number two locations in terms of profitability for U.S. corporations operating abroad - surpassing long-time leading investment partners like the United Kingdom .
The report, written by Martin Sullivan, who is a former international taxation specialist with the U.S. Treasury Department, found that U.S. multinationals made $2.01 profit in Ireland in 2001 for every $1 they made in 1999. In Britain , U.S. multinational profits dropped sharply to 67 U.S. cents in 2002 for every $1 profit made in 1999. In Germany , profits fell even more, slipping to 46 cents in 2002 for every $1 made in 1999.
Sullivan described the movement of profits toward jurisdictions with tax advantages as "a seismic shift" in international taxation. He further related to The Irish Times it was clear that U.S. corporations were locking large amounts of profits in Ireland but it was difficult to assess how much of this money was a result of genuine economic activity in the country, and how much was placed on the fact that Ireland is considered to be a tax advantage.
The affect of the EU has caused a considerable stir in Washington . A columnist for the Washington Times, Bruce Bartlett, said that U.S. tax laws needed to be rewritten to stop American companies from receiving tax credit for profits earned and held abroad.
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