Inland Revenue Attacked For Listing Ireland As 'Tax Haven'

by Jason Gorringe, Tax-News.com, London

08 August 2002

peaking to the Accountingweb news service this week, a leading UK tax expert has condemned the Inland Revenue's decision to include Ireland on a list of countries deemed to be 'tax havens' for the purposes of Controlled Foreign Company (CFC) regulation.

Ernst & Young tax partner, Anne Redston told Accountingweb that the Inland Revenue's move represents 'an extraordinary step', and warned that if the provision remains in place, it will result in a tax hike for UK companies with Irish subsidiaries, and in greatly increased compliance costs as CFCs struggle to avoid double taxation.

The UK's CFC rules are designed to prevent companies from holding their profits in low tax jurisdictions, away from home country taxation. Usually, 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.

Despite the country's low corporate tax rates, the Irish government was surprised to find the Republic included on the UK's list (which also includes Bermuda, the Bahamas, Jersey, Guernsey, and the Isle of Man), as a promise made to the European Union to impose a uniform 12.5% tax on all companies based in Ireland from 2003 seemed to have placated European high tax countries.

Multinationals located in the country such as Microsoft, Dell, and Hewlett Packard await the government's next move anxiously, while the rest of Europe is keeping a close eye on the situation, ready to jump on the bandwagon if the UK succeeds in chipping away at Ireland's low tax regime.

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