Amid mounting international criticism of its tax policies, the Irish government said Tuesday it was closing an infamous loophole that has been used by U.S. companies, including Google, to slash billions off their tax bills.
The so-called “double Irish” provision, which has come under the scrutiny of European Union regulators, will end next year, although companies already using it will be able to do so until the end of 2020, Finance Minister Michael Noonan told Ireland’s Parliament as he laid out the 2015 budget.
The loophole allows a company based in Ireland to reduce its tax liabilities for certain items to close to zero by shifting income to an affiliated company in tax havens like the Cayman Islands or Bermuda. Google last year cut its income tax bill by about $2.5 billion, largely due to its use of the Double Irish.
“Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries,” Noonan said, according to the New York Times.
Fortune called the closing of the loophole “a landmark in the clampdown by governments across the world on tax dodges by both individuals and companies. The Great Recession has made it imperative for governments to show voters that they are spreading the pain of cutbacks and tax increases fairly.”
But Crawford Spence, an accounting professor at Warwick Business School in Coventry, England, told the New York Times he was “skeptical as to how big a deal this really is. Ireland, along with other countries such as Luxembourg and the Netherlands, are at the lunatic fringe of corporate tax regimes. Cleaning up the more extreme tax arrangements that these countries have permitted in recent years does not necessarily solve the wider issue of base erosion.”
The Double Irish has been “particularly popular with companies whose chief asset is intellectual property,” Fortune reports, with the Irish-based entity typically marketing the parent company’s products across the whole of the EU’s single market, but paying nearly all its income in royalties to the company in the tax haven for use of the intellectual property.
In Google’s case, the company paid more than $11 billion in royalties during 2012 to an Irish unit that lists its headquarters at a Bermuda law firm, according to Bloomberg.