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Corporation Tax Residence: Is Ireland Exceptional ?

Jim Stewart
Associate Professor in Finance
School of Business, Trinity College, Dublin, 2
Email: jstewart@tcd.ie

IIIS Discussion Paper No. 449

There has been extensive criticism of the use of US Bureau of Economic Analysis (BEA) to estimate effective tax rates for US companies operating in Ireland. The BEA data uses place of incorporation as the location of a firm. In contrast Revenue Commissioners data, excludes firms that are incorporated in Ireland but not resident for corporate tax purposes, in estimates of aggregate profits. Omitting profits of firms that are not tax resident (bi-located), reduces measures of aggregate profits and measures of effective tax rates. This exclusion is important. Just two firms incorporated in Ireland but regarded as not resident for corporate tax purposes (subsidiaries of Apple and Google), reported pre tax profits of euro 22.23 billion in 2011. This paper shows that on several objective criteria these firms are located in Ireland and hence it is reasonable to include their profits in measures of aggregate corporate profits in Ireland. The possibility of bi-location is an important feature of the tax minimization strategies of multinational companies operating in the digital economy, and in particular for those firms using Ireland as a centre for EMEA (Europe Middle East and Africa) operations.

Low corporate tax payments and tax strategies pursued by multinational companies have attracted considerable criticism. As a result the OECD has developed proposals that are likely to result in change to the corporate tax regime and foreign direct investment in Ireland. The net effect of proposals to reform corporation tax regimes is to underline the risks involved in an industrial policy that is over reliant on tax concessions and low corporation tax rates.

Key Words
Residence for corporate tax purposes; Irish tax regime; corporate tax reform;
JEL: H25, K23, F23, L 52, O25

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Last updated 28 August 2014 by IIIS (Email).