Tax avoidance royalties make up almost a quarter of Ireland's GDP, says EU

Profits diverted through Ireland far exceeded those diverted through other EU states

Ireland attracts multinationals for its low corporate tax (Getty)

Multinational companies shifted profits through Ireland – an accounting technique designed to avoid corporation tax - equivalent to almost a quarter of the country’s GDP between 2010 and 2015.

Profits diverted through Ireland far exceeded those diverted through other EU states, according to a report published by the European Commission on Wednesday, which examines tax rules in Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands.

The Commission said that some businesses have exploited loopholes and different tax regulations across member states.

It pledged to fight “aggressive tax planning” that has conferred “unfair competitive advantages”.

In 2016 the EU Commission ruled that Ireland had given the US multinational Apple illegal state aid by allowing it to pay an effective 1 per cent corporation tax.

“These practices undermine fairness and the level playing field in our internal market, and they increase the burden on EU taxpayers,” said EU tax commissioner Pierre Moscovici.

“While we recognise the steps some of these member states have taken to adapt their tax model recently, clearly more needs to be done”.

He added: “We must ensure that fair taxation becomes the rule without exceptions”.

Companies operating in one country can make royalty payments to parent companies overseas, enabling them to shift profits out of countries with higher corporation tax rates.

According to the Financial Times, representatives of Google, Amazon, Spotify, Netflix and travel site Booking.com met with Mr Moscovici on Wednesday to discuss taxation in EU member states.

The Paradise Papers in November also revealed Apple had used the Channel Islands to avoid billions in corporation taxes after the rules in Ireland were tightened five years ago.

In the UK, Chancellor Philip Hammond announced in his Autumn Budget speech that he intends to crack down further on profit shifting.

From 2019, companies will have to pay income tax on any royalties relating to UK sales that they funnel through tax havens.