Old Wine in a New Bottle: Ireland's Revised Definition of Corporate Residence and the War on BEPS

Abstract

In response to public outcry about its role in the international tax avoidance of Apple, Ireland has recently amended its definition of corporate residence. It is interesting to investigate whether the amendment will be effective to address the tax avoidance of not only Apple, but also other US multinational enterprises (MNEs) that have also used Ireland in their tax structures. A more general question is whether the amendment represents a fundamental change of the role of Ireland in the context of the war on base erosion and profit shifting (BEPS). The analysis in this article suggests that Ireland’s role has not been changed. Instead, it even reaffirms the country’s determination to maintain that role.

On the other side of the Atlantic Ocean, a recent congressional hearing in the US also suggests that Ireland’s amendment of the definition of corporate residence is not a game changer. In fact, it pales in terms of significance when compared to the persistence of the US government to facilitate BEPS of its MNEs. The US Senate hearing on Caterpillar Inc. held on April 1, 2014 not only revealed difficult-to-find information that would not be available otherwise to the public or even to the US tax authority, but also provided the important insight that, possibly to the surprise of foreign observers, many US politicians are willing to openly and publicly support their MNEs to avoid not only foreign income tax, but also US income tax.

While the amendment of the definition of corporate residence in Ireland represents the country’s “old wine in a new bottle”, perhaps a more important “old wine in a new bottle” is with respect to the US government’s attitude towards BEPS as revealed in the Caterpillar hearing. Given this prevailing political environment in the US, it appears that there may be little hope of strong support from the US for effective anti-BEPS rules.

Keywords: tax avoidance, base erosion, profit shifting, Apple, Caterpillar, Ireland

JEL Classification: K34