Ireland to close tax loophole that saved firms billions

Ireland announced changes to its tax code on Tuesday that will close one of its most controversial tax loopholes, used by multinational companies to avoid taxes on profits from around the world.

After six years of austerity, Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlinunveiled a 2015 budget Tuesday expected to contain around 1.2 billion($1.7 billion) in income tax breaks and spending increases.

All the hard work and sacrifice of the Irish people was for an objective, and we really have reached that objective today.Public Expenditure Minister Brendan Howlin

At the same time, Ireland is bowing to pressure from the European Union and other foreign governments to close a tax loophole called the Double Irish.

Used heavily by technology and pharmaceutical firms, the Double Irish is a complex corporate structure whereby a multinational can channel untaxed revenues to an Irish subsidiary, which then pays the money to another company registered inIrelandthat is tax resident elsewhere usually in a tax haven such as Bermuda.

The tax loophole has allowed companies such as Apple, Facebook and Google to pay tax rates in the single digits, by funnelling payments for intellectual property to the offshore unit.

Under fire from EU, U.S.

Under the measures Noonan announced, all Irish-registered firms would over time automatically be deemed to be tax resident in Ireland, bringing Irish law in line with U.S. and British rules.

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Irish corporate taxes would remain at a low 12.5 per cent.

Ireland has come under fire from the EU for offering sweetheart tax deals to companies such as Apple, which is being investigated by an EU body because of its tax evasion schemes.

The U.S. is looking at ways to revise its own tax structure to prevent companies from moving most of their operations offshore.

The Wall Street Journal reports that companies are already making plans to accommodate the changes.

Some companies could be facing billions of dollars in additional taxes when the loophole is closed.

"The question is where do you go to? There's nowhere else inthe European Union. It's just getting too hot," GeorgeBull, head of the tax practice at advisory group Baker Tilly, told Reuters.

Closing loophole by 2020

The Irish government is anxious not to losethe jobs that multinationals have brought to Ireland. The door for new applicants closes in 2015,and Noonan said firms already operating suchschemes would have until 2020 to comply with the new rules.

He announced changes to theintellectual property tax regime in the hope of keeping Irelandan attractive destination for business.

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Ireland exited its international bailout in 2013 and returned to the bond markets.

It had unexpectedly strong economic growth this year driven by robust exports to Britain and the U.S.

That growth gave the country room to stop cutting spending and start investing in selected projects. Irelands deficit will be below the EU limit of three per cent of GDP in 2015.

"The budget today is the first one that I will be able to present that will not be reducing expenditure, so that is a milestone," Howlin said.

"All the hard work and sacrifice of the Irish people was for an objective, and we really have reached that objective today," he told reporters before Tuesday's cabinet meeting to approve the budget. "But this is the start of recovery. We have to lay out, in the specific measures today, a budget that will sustain recovery."