Ireland Closes “Ghost Companies” Loophole
by Jessica Schieder, 10/16/2013
On Tuesday, the Irish government announced plans to close a major tax loophole that had allowed Apple to avoid paying $40 billion in taxes.
The Irish tax loophole allowed firms to shelter profits by using “ghost companies.” These so-called “ghost companies” do not declare residency in any country, thereby avoiding paying taxes to any nation.
Combined with other strategies for tax avoidance, domestic and international loopholes allow American firms to avoid paying an estimated $90 billion in federal taxes each year.
The new policy would make it illegal for companies registered in Ireland to resist specifying a tax domicile. Sen. Carl Levin (D-MI) once referred to the loophole as the “holy grail of tax avoidance.”
Sen. McCain (R-AZ) joined Sen. Levin in issuing a joint statement on the development, saying, "Ireland's promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging.”
Nonetheless, companies registered in Ireland will still be able to choose domicile in any country, including countries where the tax rate is zero.
The Irish decision follows a number of successes in recent weeks in the fight to reduce tax haven abuse. On October 9, Switzerland - long the nation with the largest amount of the world’s offshore wealth - approved an agreement to share data on offshore accounts with nearly 60 other countries, significantly altering the institutionalized secrecy around foreign bank accounts in the country. On Oct. 12, South Africa agreed to join the United Kingdom, France, Germany, Italy, and Spain in an effort to increase transparency around offshore tax havens.
Domestically, legislation, including the Stop Tax Haven Abuse Act (S. 1533), has proposed measures to reduce the abuse of offshore tax havens and increase federal revenue by $220 billion over ten years, according to estimates by the Joint Committee on Taxation.