Ireland closes tax loophole as unveils post-austerity budget

Ireland pledged Tuesday to close a corporate tax loophole that has brought it under the international spotlight as it unveiled a budget that ends a cycle of austerity cuts.
Finance Minister Michael Noonan told parliament that the "Double Irish" system, which allows multinationals to transfer profits to tax havens, would be abolished next year for new companies, and by 2020 for existing users of the scheme.
"I am abolishing the ability of companies to use the Double Irish by changing our residency rules. All companies in Ireland must be also tax resident in Ireland."
The move comes after the European Commission opened an investigation on Ireland's tax deal with US tech giant Apple although the arrangement in question there is not the "Double Irish".
Europe's Commissioner for Taxation Algirdas Semeta welcomed the change, which still has to be approved by parliament.
"The European Commission has to look at the detail and how it will work in practice but the intention is very good," he said.
"It also explains how it's important to push the agenda to fight against tax fraud and avoidance as high as possible."
Ireland has successfully attracted many multinationals thanks to its low 12.5 percent corporate tax rate, but has come under scrutiny for arrangements that in companies in effect pay much less.
As he announced the corporate tax reform, Noonan said Dublin would work to enhance Ireland’s attractiveness to multinationals, who employ over 160,000 people in over 1,000 companies.
- 'End of budgetary austerity' -The announcement on the tax loophole came as the government unveiled its first post-austerity budget since the country nearly went bust four years ago.
Ireland entered a massive European Union and International Monetary Fund rescue programme in 2010 after expensive bank bailouts, a property market collapse and ravaged tax incomes.
Since 2008, Ireland has taken 30 billion euros ($38 billion) in spending cuts and tax hikes, an adjustment worth roughly a fifth of gross domestic product (GDP).
But the coalition government said Tuesday the 2015 spending plan marks "the end of budgetary austerity."
The 2015 budget "is about securing the recovery, building for the future and broadening it to families across the country,"Noonan told lawmakers.
Noonan said the department of finance was economic growth this year of 4.7 percent, 3.9 percent in 2015 and 3.4 percent in 2016-2018.
He also said the budget measures would reduce the deficit next year to 2.7 percent of GDP next year, well within the EU’s 3.0 percent target.
Despite that deficit, Noonan announced cuts to income tax rates and thresholds.
The top rate of tax will be cut from 41 percent to 40 percent while the point at which taxpayers enter that rate rose by 1,000 euros to 33,800 euros.
There are also changes to the Universal Social Charge (USC), a tax introduced in 2011 that has proven very unpopular, reducing the rate for some lower earners.
"These changes enhance the progressivity of our income tax system with the top 1.0 percent of income earners now paying 21 percent of all income tax and USC collected.
"In contrast, the bottom 76 percent of income earners will pay 20 percent of the total," he added.
The price of 20 cigarettes will increase by 40 euro cents at midnight to over 10 euros a pack.
But opposition finance spokesperson from the Fianna Fail party, Michael McGrath, said Noonan had "made a mess of it."
"This budget is all about using borrowed money to buy votes," he told parliament.
- 'Travelled the long road' -Among the budget increases, Minister for spending, Brendan Howlin, announced additional funding for new teachers, police and the arts and said that a public sector hiring freeze would be removed starting next year.
He also unveiled an increase in child benefits of 5 euros per month and a partial return of the welfare Christmas bonus, the first social welfare increases since 2009.
Howlin also said 2.2 billion euros in funding would be made available to tackle Ireland's social housing waiting lists over the next three years.
But the ministers warned that the recovery was not certain and urged caution.
"We have travelled the long road and are now at a very important crossroads," said Noonan.