Is Ireland a Low Tax Haven?

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Is Ireland a Low Tax Haven?

Because of its taxes and economic policies, Ireland is known as a tax haven. Legislation significantly encourages the formation and operation of firms, and the economic climate is extremely favorable for all corporations, particularly those involved in R&D and innovation.

Key Takeaways

  • Many individuals perceive Ireland as a tax haven due to its taxes and economic policies that encourage the formation and operation of enterprises.
  • The Irish economy is highly welcoming to all firms, particularly those investing in research, development, and innovation.
  • Ireland is especially welcoming to R&D-intensive start-ups that may claim back taxes.

General Taxation

The corporation tax rate in the United States is 21%. The corporate tax rate in Ireland is 12.5%. Furthermore, Ireland only levies a corporation tax rate of 6.25% on income generated by a company’s patent or intellectual property. This reduced rate is designed to give tax advantages for the preservation and maintenance of intellectual property royalties. Ireland’s evolution as a low-tax regime may be traced back to 1956, when it implemented tax relief on export earnings.

Ireland’s tax regulations on R&D roles provide excellent incentives for firms to invest in creative concepts. Ireland has rules in place that enable research and development intensive start-ups to seek back taxes. This is true even if the startup is losing money and is unable to pay its corporation taxes. Furthermore, the 25% tax credit is applied to a corporation tax rate of just 12.5%.

Ireland is strongly dependent on business taxation and has a strong motivation to maintain its status as a corporate tax haven and avoid implementing harmful laws. Ireland has tax treaties with approximately 70 nations, more than 25 of which are developed.

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Economic Policies

Corporations may use transfer pricing to move earnings from high-tax countries to low-tax areas. As a result, a company trades with various subsidiaries rather than with outside entities. When multinational firms create up to 80% of the world’s commerce, this artificial shift will result in reduced taxes. This transfer pricing strategy prompted a Senate probe against Apple Inc. The Senate discovered that between 2009 and 2012, an Apple corporation in Ireland collected $74 billion in worldwide revenues, on which Apple paid a tax of less than 2% to Ireland. Another business got $30 billion but made no payment. According to the European Commission, Ireland provided Apple with excessive tax breaks and must collect 13 billion euros in unpaid taxes.

Ireland’s financial system allows for the establishment of special-purpose entities (SPVs) to reduce taxes. There were 2,852 special-purpose vehicles in Ireland as of the fourth quarter of 2020, with assets totaling 895.9 billion euros. The reason for the increased use of special-purpose vehicles is a lack of financial openness in Ireland. The government does not compel multinational firms to publish public reports of their revenue, subsidies received, profits, or tax payments.

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