Yahoo Finance Controversial ‘single malt’ tax avoidance structure still in use in Ireland
A controversial tax structure dubbed the ‘single malt’ is still being exploited in Ireland, despite Irish government insistence that US tax reforms would effectively put an end to its use.
A report produced by Irish charity Christian Aid notes that the structure, which allows multinational companies to pay single-digit tax rates by booking foreign income in Ireland and routing it to low-tax jurisdictions like Malta, has been deployed as recently as July 2018.
Moves made in recent months by Teleflex (TFX), a multi-billion dollar medical technologies company headquartered in Pennsylvania, suggest that the company has implemented the ‘single malt’ structure, according to the report.
An Irish subsidiary of the company created in late 2017 shifted its residence from Ireland to Malta, the report says. “Its registered ‘place of business’ is the offices of its Maltese lawyers, suggesting that it does not intend actually to conduct substantial business activities in Malta,” it notes.
The ‘single malt’ structure allows companies to funnel their non-US sales income from one Irish subsidiary into another Irish, but Maltese-resident, subsidiary by paying royalties for the use of company intellectual property, the rights of which have been given to the Maltese-resident company. This typically reduces the taxes paid on this sales income dramatically. Teleflex did not respond to a request for comment from Yahoo Finance.
The December 2017 overhaul of the US tax code by the Donald Trump administration aimed to reduce the the exploitation of foreign low-tax jurisdictions by US multinationals, in part by changing the minimum rate of effective tax on payments between corporations and foreign subsidiaries.
In June, the Irish finance ministry had said this “should, in theory, eliminate the ability of US multinationals to achieve single-digit tax rates in respect of their foreign activities,” but that it had yet to determine if further action was needed.
Sorley McCaughey, the head of policy and advocacy of Christian Aid, told Yahoo Finance UK on Tuesday that the Irish government “has failed to take meaningful action against the Single Malt tax avoidance structure.”
A spokesperson for the ministry said that while the US reforms do “not prevent a company being incorporated in Ireland and tax resident in Malta,” the benefit of doing so “should be eliminated or substantially reduced.” They noted that the “need for further action, if any, by Ireland remains under consideration.”
Irish tax laws have been under international scrutiny for years. In 2014, the Irish government moved to close a loophole that gave rise to a tax avoidance structure known as the ‘double Irish,’ which allowed companies to transfer income to Caribbean tax havens.
Teleflex, according to the Christian Aid report, had used the ‘double Irish’ structure to reduce its global effective tax rate to just over 3%. “The ‘single malt’ tax structure is effectively a replacement for the famous ‘double Irish’ structure,” the report says.
Trump has also been critical of tax inversions, whereby US companies merge with Irish companies for the purpose of availing of the country’s low corporate tax rate. In October 2017, he falsely claimed that Ireland was set to lower its 12.5% corporate tax rate.
Meanwhile, Ireland recently collected €14.3bn (£12.7bn) in unpaid corporate taxes and associated interest payments from Apple (AAPL), following a 2016 European Union ruling that said that tax benefits provided to the technology giant amounted to illegal state aid.
