Ireland may not support a proposal advanced by the UK and Germany to use a modified nexus approach to put limits on preferential intellectual property tax regimes under the OECD/G-20 base erosion profit shifting (BEPS) plan, Finance Minister Michael Noonan said December 2.
The joint UK/German proposal, announced by the UK November 11, requires that the benefits provided under an IP regime must be tied to expenditures for R&D carried out in the country, with some concessions added to address UK concerns. The proposal has been adopted by the OECD’s Forum on Harmful Tax Practices as a basis for continuing negotiations on how to craft rules under Action 5 of the BEPS plan, according to a December 2 statement by UK Financial Secretary to the Treasury, David Gauke.
In comments before the Institute of International and European Affairs though, Ireland’s Noonan said he questioned whether the measure was “fair reform,”and suggested that Ireland may not support it.
“In a nutshell it appears to me that the determining factor [of the UK/German approach] will be based upon whether any given entity, looking to access the benefits of the box, meets the required percentage of total R&D workforce in the group as a whole. This approach, on the one hand, fits within Ireland’s core value of attracting substance-based investment however, on the other hand, I do have concerns that such an approach, if designed too tightly, could have the potential to limit the scope for use by some smaller countries.”
“BEPS must not be about advantaging big countries over small countries,” he said.
Ireland currently does not have an IP regime, but the Irish government said on October 14 that it intends to adopt a “Knowledge Development Box” by 2016. The announcement coincided with Ireland’s decision to do away with Irish residence rules that gave rise to the much criticized “Double Irish” tax loophole exploited by some US MNEs. Ireland sees the Knowledge Development Box as a key part of its new tax strategy. It has also said that the new IP regime will conform to OECD and EU rules.
Noonan also said he is also concerned that the BEPS process will be used to to single out US multinational entities. “If BEPS took this course it would merely be playing to the gallery and not be focused on real tax reform,” he said.
He said that the differences between US tax rules permitting deferral and those in place in large European economies have led to tension in the international tax arena, and that sometimes Ireland has been “caught in the crossfire.”
“It is no coincidence that the majority of EU State Aid investigations that are taken from a taxation perspective have been directed at US multinationals,” he said.
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