Is Ireland a Low Tax Haven?

Ireland is referred to as a tax haven because of the country's taxation and economic policies. Legislation heavily favors the establishment and operation of corporations, and the economic environment is very hospitable for all corporations, especially those invested in research, development, and innovation.

Key Takeaways

  • Many people regard Ireland as a tax haven because of its taxation and economic policies, which favor the establishment and operation of corporations.
  • The Irish economic economy is very hospitable for all corporations, especially those invested in research, development, and innovation.
  • Ireland is particularly hospitable to research and development intensive start-ups, which can claim back taxes.

General Taxation

The United States has a flat corporate tax rate of 21%. Ireland’s taxation rate for corporations is 12.5%. In addition, Ireland only charges a corporate tax rate of 6.25% for revenue tied to a company’s patent or intellectual property. This lower rate is intended to provide tax breaks for the protection and support of royalties derived from intellectual property. Ireland's development as a low corporate tax regime can be traced to 1956, when it introduced tax relief on export profits.

Ireland’s taxation policies on research and development positions offer great incentives for corporations to invest in innovative ideas. Ireland has enacted policies allowing research and development intensive start-ups the ability to claim back taxes. This is true even if the start-up is incurring losses and cannot pay its corporate tax. In addition, the 25% tax credit is applied against the corporate tax rate of only 12.5%.

Ireland is heavily reliant on the corporate tax and has a clear incentive to remain a corporate tax haven and not implement adverse policies. Ireland has a tax treaty with over 70 countries, over 25 of which are developed countries.

Economic Policies

Transfer pricing allows corporations to shift profits from high-tax jurisdictions to low-tax jurisdictions. Thus, a corporation is trading with different subsidiaries rather than with external companies. This artificial shift, when performed by multinational corporations that produce up to 80% of the world’s trade, will result in lower taxes. This transfer pricing policy resulted in a U.S. Senate investigation of Apple Inc. The Senate found that an Apple entity in Ireland received $74 billion in global receipts from 2009 to 2012, on which Apple paid a tax of less than 2% to Ireland. Another entity received $30 billion and paid nothing. The European Commission has said Ireland gave Apple undue tax benefits and must recover 13 billion euros in unpaid taxes.

The financial environment of Ireland allows for special-purpose vehicles (SPVs) to be established for the reduction of taxes. As of the fourth quarter of 2020, there were 2,852 special-purpose vehicles located in Ireland, holding a reported 895.9 billion euros in assets. The reason for the high usage of special-purpose vehicles relates to financial transparency, as Ireland has little to none. The government does not require transnational corporations to provide public accounts of turnover, subsidies received, profit, or amount of taxes paid.

Article Sources
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  1. Internal Revenue Service. "Publication 542, Corporations."

  2. IDA Ireland. "Taxation in Ireland 2016." Pages 2 and 7.

  3. Frank Barry, Trinity Dublin College. "Foreign Investment and the Politics of Export Profits Tax Relief 1956." Page 3.

  4. IDA Ireland. "Taxation in Ireland 2016." Page 6.

  5. Irish Tax and Customs. "Dates of effect of Ireland’s tax treaties."

  6. United Nations Conference on Trade and Development. "80% of trade takes place in ‘value chains’ linked to transnational corporations, UNCTAD report says."

  7. U.S. Senate Permanent Subcommittee on Investigations. "Exhibits: Hearing on Offshore Profit Shifting and the U.S. Tax Code Part 2 (Apple Inc.)" Pages 2, 5, 38 and 39.

  8. European Commission. "State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion."

  9. Central Bank of Ireland. "Special Purpose Entities Statistics Q4 2020."