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Global tax deal leaves billion dollar loopholes, analysis finds

BUSINESS
By Reuters | December 5th 2021
By Reuters | December 5th 2021
BUSINESS

Some companies could still use Ireland to reduce their tax bills. [Courtesy]

Leaders of the world’s largest economies hailed a recent agreement to overhaul global corporate tax rules as key ensuring multinationals paid their fair share of tax.

The October deal established a global minimum corporate tax rate of 15 per cent aimed at curtailing profit-shifting to lower-tax jurisdictions such as Ireland, where many large international firms have their European headquarters.

“It will eliminate incentives to shift jobs and profits abroad,” US President Joe Biden in early October.

But some companies could still use Ireland to reduce their tax bills even after the agreement takes effect, according to tax specialists and a Reuters review of corporate filings.

That is because the new agreement will not stop companies benefiting from a strategy widely implemented in recent years that reduces taxes over a period of up to a decade or more.

Ireland’s relatively generous tax allowances permit multinationals with a presence in the country to sell intellectual property, such as patents and brands, from one subsidiary to another to generate deductions that can be used to shield future profits from tax.

Companies that have generated deductions to reduce their taxable income by more than $10 billion (Sh12 trillion) each in recent years via this tax-minimising strategy include US technology companies Adobe Inc and Oracle Corp, corporate filings show.

Business-software provider Oracle declined to comment and Adobe, creator of software such as Acrobat pdf-maker, did not respond to requests for comment. Both companies have said they conform to relevant tax laws.

The agreement, brokered by the Organisation for Economic Co-operation and Development (OECD), is due to take effect in 2023. It was signed by more than 130 jurisdictions, including Ireland.

The Irish finance ministry said Ireland’s tax treatment of intellectual property transactions is in line with other OECD countries.

In response to Reuters’ questions, the OECD acknowledged that companies could continue to benefit from profit-shifting strategies already in place but that it expects companies to be unable to build up such tax shields in the future.

The approach typically relies on a company also having a subsidiary in a country with a corporate income-tax rate of zero, such as Bermuda, that enables the company to conduct the sale tax free.

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