Brits Classify Ireland As A Tax Haven

by Jason Gorringe, Tax-News.com, London

30 July 2002

Even though the EU has accepted Ireland's planned universal corporation tax rate of 12.5%, this hasn't stopped the UK from placing Ireland into a 'tax haven' category for the purposes of its Controlled Foreign Company (CFC) legislation. Along with Bermuda, the Bahamas, the Channel Islands and the Isle of Man, Ireland will now be counted as a low tax jurisdiction, and Irish subsidiaries of UK companies will have to satisfy a series of tests if their Irish profits are not to be charged to UK tax as well as to Irish tax.

CFC rules, which are applied in one form or another by most high-tax countries, prevent companies from holding their profits in low-tax jurisdictions away from home-country taxation. Typically, such profits get taxed under CFC rules unless the holding company can prove that they have been genuinely reinvested in a way which would be deductible under home country rules.

Senior officials at the Irish Department of Finance were said to be "shocked" by the development, which they learnt about just hours before the British Inland Revenue issued a circular to British companies last Tuesday. Finance Minister Charlie McCreevy is said to want a meeting with British Chancellor Gordon Brown on the subject.

Feargal O'Rourke, tax partner with PricewaterhouseCoopers, told the Irish Independent that the number of companies affected will probably be small, but the development opens the door for countries such as the United States, Germany and Japan to crack down on companies based in Ireland.

"This is the first sign of foreign `discomfort' at Ireland's low tax regime and Ireland needs to take on the UK over this issue," said O'Rourke. "If we let it slide, other countries may follow suit with more discriminatory changes. We are a legitimate low-tax jurisdiction, not a tax haven, and we need to challenge any country that seeks to paint us as being anywhere near the wrong side of that divide.

"This will be a seminal moment in the transition of Ireland Inc from a high corporate tax jurisdiction with tax incentives, such as the 10 per cent rate, to an overall low-tax jurisdiction."

Recommended