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Global tax deal leaves billion-dollar loopholes, Reuters analysis finds

DUBLIN, Dec. 3 (Reuters) – Leaders of the world’s largest economies have hailed a recent agreement to revise global corporate tax rules as the key to enabling multinationals to pay their fair share of tax.

The October agreement established a global minimum corporate tax rate of 15% aimed at limiting profit transfers to low-tax jurisdictions like Ireland, where many large international companies have their European headquarters. “It will remove incentives to move jobs and profits overseas,” US President Joe Biden said in early October.

But some companies could still use Ireland to lower their tax bill even after the deal goes into effect, according to tax experts and a Reuters review of the companies’ returns.

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Indeed, the new agreement will not prevent companies from benefiting from a strategy widely implemented in recent years that reduces taxes over a period of up to a decade or more. Ireland’s relatively generous tax breaks allow multinationals in the country to sell intellectual property, such as patents and trademarks, from one branch to another in order to generate deductions that can be used to protect profits future tax.

Companies that have generated deductions to reduce their taxable income by more than $ 10 billion each in recent years through this tax reduction strategy include U.S. technology companies Adobe Inc (ADBE.O) and Oracle Corp (ORCL. N), according to company statements.

Enterprise software provider Oracle declined to comment, and Adobe, creator of software such as Acrobat pdf-maker, did not respond to requests for comment. Both companies said they were in compliance with relevant tax laws.

The agreement, negotiated by the Organization for Economic Co-operation and Development (OECD), is expected to enter into force in 2023. It has been signed by more than 130 jurisdictions, including Ireland.

The Irish Department of Finance has said Ireland’s tax treatment of intellectual property transactions is in line with that of other OECD countries.

In response to questions from Reuters, the OECD acknowledged that companies could continue to benefit from profit shifting strategies already in place, but that it expects companies to be unable to form such tax shields in the future. The approach typically relies on a business that also has a subsidiary in a country with a zero corporate tax rate, such as Bermuda, which allows the business to make the sale tax-free. By phasing out zero-tax jurisdictions for multinationals, the OECD expects the 15% global minimum tax to make the strategy more attractive.

“We are trying to design rules for the future,” said John Peterson, an OECD official.

Peterson added that the OECD cannot know for sure how individual country’s rules would interact with the global minimum tax. But he said the OECD is confident the abuse will be limited by requiring countries to calculate taxable income in accordance with accounting rules.

Tax experts say the impact of the deal remains uncertain as key details have yet to be agreed, including how to calculate the profit pot that needs to be taxed. Countries are currently debating waivers for certain tax breaks. In addition, jurisdictions could retain wide latitude in how they allow businesses to calculate taxable income, the specialists said.

“Where there is no accounting consistency there is room for play,” said Nicholas Gardner, tax partner at London law firm Ashurst.

The new rules are expected to be finalized next year and require legislative approval in some jurisdictions. This includes the United States, where several senior Republican politicians have expressed their opposition to the deal.

Malta is another country that allows multinationals to minimize taxes through intra-company sales of intellectual property. Malta’s finance ministry did not respond to requests for comment on its intellectual property tax breaks.

TAX SHIELD

International pressure has forced Ireland in recent years to phase out one of the world’s best-known tax loopholes, known as the “Irish Double”. intellectual property, according to tax advisers, economists and business returns.

Since 2015, multinationals have transferred hundreds of billions of euros of intellectual property to Ireland, economists say. This has led to large annual tax deductions for foreign companies linked to so-called intangible assets – over 45 billion euros in 2019, up from less than 2.7 billion euros in 2014, according to administration data. Irish tax. The data does not disaggregate how much of these deductions were related to intellectual property transactions within a company.

“Virtually all multinationals have moved intellectual property,” said Christopher Sibley, senior statistician at Ireland’s Central Statistics Office.

Profits protected from tax by US-based corporations typically come from sales in Europe, Asia and Africa, according to tax practitioners and company returns. The US Treasury loses because the products and services sold are based on research conducted and investments made in the United States, according to academics.

The US Treasury declined to say whether US companies would continue to profit from pre-existing tax strategies or profit from futures.

Adobe reserves most of its sales to non-US customers through an Irish subsidiary based in a four-story building in an office park outside of Dublin, according to company documents.

In 2020, Adobe Systems Software Ireland Ltd purchased the intellectual property of another subsidiary which was both a company registered in Ireland and a resident of Bermuda for tax purposes. The implementation meant that no tax was due on the $ 11 billion in profits from the sale. Meanwhile, Irish tax resident Adobe Systems Software Ireland recorded an expense of $ 11 billion that could be used to offset income taxes over a period of around eight years as it is a asset that depreciates over time, according to the accounts of subsidiaries.

Adobe paid $ 197 million in taxes on $ 3.1 billion in reported profits in Ireland in 2020 and sales of $ 5.6 billion, according to accounts from its main Irish unit. This equates to an effective tax rate of around half of the current statutory corporate tax rate of 12.5% ​​in Ireland, thanks to the impact of capital allowances.

Other U.S. companies that have racked up multibillion-dollar tax deductions on sales of intellectual property to affiliates over the past three years include semiconductor maker Analog Devices Inc (ADI.O), the maker medical device company Stryker Corp (SYK.N) and the Cadence software group. Design Systems Inc (CDNS.O), show the public accounts of their Irish subsidiaries.

Analog Devices and Stryker said they comply with tax rules and regulations, but declined to answer questions about their specific tax provisions. Cadence declined to comment.

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Tom Bergin reporting; Editing by Cassell Bryan-Low and Rachel Armstrong

Our standards: Thomson Reuters Trust Principles.


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Rodney N.

The author Rodney N.