Will Medtech Companies Kiss Irish Tax Inversions Goodbye?
By Jof Enriquez,
Follow me on Twitter @jofenriq
Ireland is moving to end the “Double Irish” tax loophole that allows foreign companies to pay significantly lower tax rates. This change in policy could boost tax rates for a great many U.S. companies, including some big names in the medical device industry.
According to the Wall Street Journal, Ireland will require all registered companies in Ireland — including subsidiaries of foreign medtech and pharmaceutical companies — to become tax residents there. The WSJ says “hundreds of companies funnel tens of billions of dollars a year in profit to tax havens” using Ireland as a conduit.
“The supertanker is turning,” said Heather Self, a tax expert with Pinsent Masons LLP in London, in the WSJ article. “We are moving toward some tax being paid somewhere on all income.”
Ireland has been under increasing pressure by the United States and the European Union to update old tax rules originally designed to lure foreign investment and create more jobs. Its new tax restructuring could ease some of that pressure, although it will give companies 6 years or until 2020 to comply with new regulations. To soften the impact of the tax hit on companies declaring residency in Ireland, Irish officials are considering creating “knowledge development boxes,” which will be provided as tax breaks for revenue and royalties derived from intellectual property, the New York Times reported.
“Aggressive tax planning by the multinational companies has been criticized by governments across the globe, and has damaged the reputation of many countries,” Irish Finance Minister Michael Noonan told Parliament in his budget speech, according to the WSJ. After his speech, Noonan said in that he wants to “make sure that the slur of the "Double Irish" is no longer attached to Ireland's reputation,” according to Reuters.
“I think this is part of an overall drive to try to get international companies to pay more tax,” Joe Tynan, tax partner at PricewaterhouseCoopers in Dublin, told the NYT. “Ireland wants to be very competitive, but it has to do that within international rules, and there was a feeling that this was at the boundaries of those rules.”
A recent report revealed that approximately 72 percent or 362 of Fortune 500 companies stash billions of dollars in offshore tax havens. The companies include Apple, GE, Microsoft, and Google. Major medical device companies such as Johnson & Johnson, Abbott, and Medtronic were also on the list. Medtronic alone — which is moving to Ireland as part of its planned merger with Covidien — has $13 billion of cash outside the U.S., according to the Financial Times.
The Medtronic-Covidien deal is one of the largest recent tax inversions. The transaction will be refinanced due to new tax regulations introduced by the Treasury department that make it more expensive for U.S. firms to move to more tax-friendly countries like Ireland.
Image credit: "Taxes," © 2013 401(K) 2013. Used under a Attribution-ShareAlike 2.0 Generic license: http://creativecommons.org/licenses/by-sa/2.0/deed.en