Kitty Harburn

It is no secret that Ireland is an attractive tax refuge for multinational corporations. Since 2003, when the corporation tax rate was reduced from 40% to 12.5%, Ireland has seen a huge influx of foreign direct investment. Now the home to over 1,000 internationally recognised MNCs, a favourable corporation tax is one of, if not, the leading factor in Ireland’s corporate attractiveness. 

The Current Stage of Foreign Direct Investment in Ireland

ICTs (Information and communication technologies) are among the leading players in corporate tax revenue, with pharmaceuticals holding a top position in the last couple of years. In 2022, pharmaceutical companies and those in the chemical sector paid 46% more tax than those in the tech sector. Slightly more than three years after the onset of the COVID-19 pandemic, the income of pharmaceuticals has noticeably declined due to the diminishing sales of vaccines. Taking a closer look at  2022 tax receipts, it reveals however that 86.5% of the revenues stream came from foreign-owned MNEs. 

Following the release of the 2024 Budget, there is room for speculation about the future of Irish corporation tax revenues. International regulations set out by the OECD conclude that the minimum corporation tax rate will increase to 15%, from 12.5% currently, in line with the BEPS Pillar two. Following this policy release it is important to think about how might this increase in corporation tax affect the tax revenues obtained by the Irish government? Will MNCs continue to develop and expand in Ireland? With this change, it is important that Ireland stays attractive as a destination for FDI. Not only are there revenue advantages attached to these players in our market, but also socioeconomic benefits, including job creation.  

A quantified expectancy in tax receipts has not yet been speculated, however if Pillar 1 is implemented then the possible increase in net tax may be mitigated by this execution of legislation OECD proposal. 

Looking Ahead

Looking at Ireland’s position in 2023 in relation to corporation tax, Ireland has the third lowest rate in Europe. The increase to 15% will still leave the country in a favourable position, compared to the rest of Europe which has an overall average of 21.5%. However, Ireland relies on CT receipts a lot more than the OECD median, and in the last 10 years alone this reliance has almost doubled. Hence, any departure or decrease of the big players will have a significant effect on many areas, primarily tax budgeting and government expenditure financing. The “€2bn loss to be reached” speculated by officials is nonetheless a cause for concern in Ireland’s current economic environment. 

Although there is a loss of competitive advantage, overall the country still stands in a promising position for FDI and business growth. Aside from Ireland’s favourable tax system, other factors such as the evolved financial sector and skilled workforce are only a small few that make Ireland a desirable destination for business. Brexit has also seen an increase in the number of companies who have begun expansions to Ireland as a gateway to European operations, Stripe being one of the few. Ireland has EU member state benefits, while also being an English-speaking country, breaks down potential barriers and potentially offsetting a rise in corporation taxes. On top of this, Ireland has been ranked 1st In Europe for the ease of paying taxes per PWC’s paying taxes report 2020, highlighting the maintenance of the tax refuge status. 

Innovation has also been a key driver in the country in recent times, with tax policies introduced to support and promote this cause. Per the Budget 2024, the R&D (Research & Development) tax credit which will be increased from 25% to 30%, ensuring that Ireland stays attractive and competitive for FDI. Following reports from Silicon Republic who highlighted that “80% of companies in Ireland plan to increase R&D spending over the next 3 years”,  this tax legislation will ensure adequate benefits to companies who qualify for the credit and will be affected by the Pillar two that otherwise may have seen an increase in their net tax bill, easing concerns for the future of FDI.