DUBLIN (Reuters) - Ireland will phase out a tax loophole that multinationals use to save billions of dollars under sweeping changes to its corporate tax structure announced in Tuesday's budget, the first in seven years without new austerity measures.
With one eye on an election in 18 months' time, Finance Minister Michael Noonan also unveiled plans to cut the income tax burden on low and middle income earners frustrated by Ireland's uneven recovery from the global crisis, changes that will benefit workers at foreign as well as domestic companies.
Ireland, which left a European Union/IMF bailout programme only last year, is enjoying an economic resurgence that the euro zone has held up as proof that austerity policies can work.
But Noonan responded to criticism over the past 18 months from both the EU and the United States for Irish tax rules that have enabled firms such as Google and Apple to cut their overseas tax rates to single digits.
The changes spell the eventual end to "Double Irish"schemes, so-called because they involve multinationals setting up two Irish subsidiaries to slash their tax liabilities.
"I want to make sure that the slur of the "Double Irish" is no longer attached to Ireland's reputation and it had become something that was thrown at us internationally," Noonan told Reuters in an interview after his budget speech. "There's a big advantage I believe for Ireland to be the first mover. Our competitor countries, if you were investing there tomorrow you would still be uncertain about what the regime might be in two years time."
The changes mark Ireland's most significant tax reform since it lowered the corporate tax rate to 12.5 per cent in the late 1990s to entice companies to bring jobs to the country.
At risk for Ireland are the 160,000 jobs - almost one in 10 workers in the country - paid for by about 1,000 foreign firms that have set up a base in Ireland to benefit from its tax code and flexible, English-speaking work force.
Among the most criticised parts of the Irish tax code is the complex corporate structure whereby a multinational can channel untaxed revenues to an Irish subsidiary, which then pays the money to another company registered in Ireland that is tax resident elsewhere, usually in a tax haven such as Bermuda.
From January, Irish-registered firms will automatically be deemed to be tax resident in Ireland, bringing Irish law in line with U.S. and British rules. Companies already incorporated in Ireland will have until 2020 to comply with the new rules.
The head of Google's Irish operations John Herlihy said in a statement that the company was deeply committed to Ireland and will work to implement the changes as they become law.