Bowing to pressure from the OECD and the European Commission, Ireland has agreed to close a loop hole that exploited the differences between U.S. and Irish tax law. France, too, has been particularly outspoken in its attempt to bring attention to unfair tax competition. The Double Irish loophole is used by large companies with significant royalties arising from intellectual property holdings. Ireland recognizes a company’s tax residence as the place where the company is operated from, while the U.S. focuses on where a company is registered. Thus, an Irish registered company being controlled from a tax haven like Bermuda, is considered, by Ireland, to be tax-resident in Bermuda. However, the U.S. considers that same company to be a tax resident of Ireland. Leaving royalty payments made to the Irish company untaxed or minimally taxed.
Starting in 2015, newly registered Irish companies will be regarded as Irish tax resident. The tax rate for an Irish tax resident company is either a 12.5% rate on trading income or otherwise 25%. This is still one of the lowest tax rates in the EU. Pre-existing companies using the double Irish structure can maintain that structure and its advantages until 2020, after which all Irish registered companies will be deemed Irish tax resident.
Because of its already low corporate tax rates, you may not see a rush to move from Ireland. Ireland’s Minister of Finance has also hinted at additional potential tax breaks or credits that might ease the loss of this loophole.