As executives pore over the slow death of the “Double Irish” tax shelter favored by US companies, their reaction seems to be: don’t panic.

The tax break, which allows corporates to avoid paying levies on much of their income, will be closed to new entrants from January, Minister for Finance Michael Noonan said yesterday, as he laid out the 2015 budget.

Companies already enjoying the tax break can continue to do so until the end of 2020, he said.

“We expect the grandfathering provisions will give us all time to adjust any plans as a result of the impact,” Dominic Caruso, chief financial officer at Johnson and Johnson, said on a conference call after earnings yesterday.

The world’s biggest maker of health-care products, employs more than 2,500 people in Ireland. “They do expect to keep Ireland competitive.”

Mr Noonan laid out the changes amid international pressure on Ireland to alter some of its tax breaks.

He will soften the impact from ending of the shelter by granting tax breaks for patents, as well as giving executives time to find new ways to cut tax bills.

The phase out, coupled with the availability of other strategies in Ireland and elsewhere, may reduce the impact on companies and tax revenues.

“For multinationals there will be no practical change,” said Stephen Kinsella, an economics lecturer at the University of Limerick, in the south west of Ireland. “From a tax justice perspective, this is bad news. For the Government, it’s a good thing as it limits any reputational damage going forward.”

The “Double Irish” mechanism permits companies to collect profits through their Irish subsidiaries, often with real operations and employees in the country. Those units then route those profits through royalties and other payments to a second Irish subsidiary, headquartered in a tax haven like Bermuda, Grand Cayman or the Isle of Man.

Google, for example, cut its income tax bill by about $2.5 billion last year, largely thanks to its use of this technique.

The company paid more than $11 billion in royalties to an Irish unit that lists its headquarters at a Bermuda law firm during 2012, the most recent year for which records are available.

“It’s for governments to decide the law and for companies to comply,” John Herlihy, head of Google in Ireland, said. “We’re deeply committed to Ireland and will work to implement these changes as they become law.”

Forest Laboratories, which was acquired by Actavis earlier this year, has used a “Double Irish” for several years, sheltering from tax the profits generated by its antidepressant Lexapro, according to company filings.

“With ample time to plan and restructure our intellectual property if necessary, and a diversified portfolio favoring products outside of the Irish tax structure, we don’t anticipate any impact on our business as a result of the changes,” Actavis spokesman David Belian said.

Aidan Byrne, a tax partner at Baker Tilly Ryan Glennon in Dublin, said multinationals may not pay significantly more tax solely as a result of the Irish changes. “Unless the international community acts in unison, practices such as the ‘Double Irish’ will continue, just in different countries,” he said.

Companies like Cisco Systems and Yahoo have relied on tax-cutting structures using units in Switzerland.

The European Commission is investigating tax arrangements of Starbucks in the Netherlands, as well Luxembourg’s tax agreements with Amazon.

Forces outside Ireland may ultimately push companies to pay more tax. The Organization for Economic Cooperation and Development last month issued proposed guidelines to limit many corporate tax avoidance techniques. That could increase tax revenue in places like the US where many big companies are headquartered, or overseas markets, like France and Germany.

“All countries are moving in the same direction,” said Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, in an interview with RTE Radio . “We do not want double non-taxation.”

Mr Noonan also announced plans for a “knowledge development box,” which would tax profits generated as a result of patented innovations, like technological and medical developments. Such a tax break would be similar to so-called patent box tax benefits offered by the Netherlands and the UK.

“What is important is that they comply with the fair competition rules,” said EU Taxation Commissioner Algirdas Semeta told reporters in Luxembourg after a meeting of EU finance ministers.

“One has to be very, very careful in the designing of this system in order to avoid a situation where they serve as just a pure system of profit shifting.”

Bloomberg