Michael Mooney

In 1999, when former Irish Finance Minister Charlie McCreevy lowered the Irish corporate tax rate from 32% to 12.5%, his aim was clear: reward effort and enterprise in Ireland.  At the time his move coincided with the famed ‘Celtic Tiger’, Ireland’s turn of the century economic boom that came after its entry to the EU. As such, despite the minimised tax rate, Ireland experienced years of increasing tax returns, rising €4.8 billion from 1990 to 2004. However, with a shifting financial and political landscape at the global scale, where does Ireland’s status as a hearth for foreign investment stand?

Background

Ireland has thrived on foreign investment, experiencing continuous growth stemming from American multinational enterprises (MNEs) looking to expand to European markets. The economic incentive of Ireland’s reputed 12.5% tax rate made it more than competitive. However, the new Global Minimum Tax (GMT) rate may change that. The GMT was set at 15% by the Organisation for Economic Co-operation and Development (OECD) to ‘reduce the incentive for businesses to shift profits to countries with lower tax rates’.

Robert Willens, a taxation expert, believes there will be an impact. ‘Since Ireland’s well deserved reputation as a tax haven was, arguably, its best calling card, one can’t help but wonder whether the loss of its unique tax status will have an adverse impact on its economy.’ He says, ‘A higher tax rate will threaten Ireland’s economy.’ 

External Influence

Moreover, in 2017, the US implemented the Tax Cuts and Jobs Act (TCJA), lowering rates for companies from 31% to 21%. This incentivised US-based corporations to hold Intellectual Property (IP) locally instead of internationally. The theory behind this move highlights a primary benefit of low corporate tax rates: the presence of MNE’s and their corresponding taxes. The US’s bid to ‘house’ the IP of companies with headquarters in Ireland had the potential to bring in hundreds of billions of dollars of additional tax income – and for many years, it did so. The result of the TCJA did shake up the current corporate tax scheme a bit. ‘In 2018, US corporations as a whole brought back $665 billion.’ Microsoft alone transferred large sums – $77 billion in 2019 – back to America from Ireland. 

Additionally, Ireland’s loopholes that allowed Intellectual Property (IP) to be taxed at a rate below the 12.5% statutory corporate rate have been made far more difficult to exploit. Specifically, profit-shifting strategies such as the Single Malt, Double Irish, and Double Dutch – which allowed companies’ Intellectual Property to be taxed in Ireland, Malta, or other tax havens – have been phased out since 2014 through EU-induced legislation. 

On September 10th, Apple Inc. was ordered by the European Court of Justice to pay €14.1 Billion in unpaid taxes to the Irish government. Although this produces additional revenue for Ireland in the short term, it may also disincentivise corporations from holding money in the country. Previously, profit-shifting and tax credits enabled multinational companies to experience effective taxation rates at close to 2.5%. These operations’ closure combined with the US’s newly competitive corporate tax rate, and punishments for corporations that utilised taxation loopholes may have implications for Ireland’s economy. 

The Irish Offer 

Despite this, Ciarán Conroy, an expert in business tax policy, believes that ‘the most important thing Ireland has is not tax rate’. In fact, one of Ireland’s largest draws for MNEs and stakeholders is the tax certainty associated with investments in the country. Stakeholders in Ireland have a precedent of not experiencing unintended consequences or broken commitments, but instead benefit from accessibility of the system and government alike. 

While the US’s 21% corporate tax rate may be comparatively low enough to rival Ireland’s 15% rate. The upcoming US Presidential election adds a degree of uncertainty to the stability of the tax rate, following Harris’ proposal to raise the corporate tax rate to 28%, and Trump’s inclination to lower the rate to the Global Minimum Level (15%). In recent years, continuous growth in the American tech sector spurred by Artificial Intelligence companies, has produced more business-side demand for access to international markets and consumers. Already, Open AI, a leading Artificial Intelligence non-profit has opened branches in Dublin, London and Tokyo. Ireland’s EU status, proximity to both the US and EU markets, and highly educated, English-speaking workforce still produce a competitive offer to alternative European options.

Mr. Conroy says this competitiveness is demonstrated in the hiring trends of MNEs in Ireland workforce, that ‘the multinationals are hiring more and more.’  According to the Industrial Development Authority (IDA), the Irish body that oversees foreign direct investment, ‘16,843 new jobs were created in IDA client companies in 2023’, with the workforce ‘accounting for 11.3% of national employment’. Despite this, the IDA reported a 0.3% decrease in overall employment within their client companies. This minor drop follows years of continuous growth in terms of total employed and jobs added. 

Looking Forward

In 2021, when Ireland agreed to the Global Minimum tax rate, the IDA still saw a 6.4% increase in total IDA employment. However, in 2023, the rate has fallen 1 year off from the implementation of the Global Minimum tax rate. Additionally, “the decrease was driven by a slowdown in the information and communication technology (ICT)”, which comprises US MNEs such as Google, Microsoft, and IBM, to name a few.

Ireland’s less attractive tax rate necessitates excellence in other aspects, such as their tax certainty offer, and accessibility to MNEs looking to invest. Another aspect in which Ireland could improve their competitiveness are the conditions offered to workers. The ongoing housing crisis, high energy costs, and insufficient public transportation, may contribute to hiring hesitancy from MNEs. Regardless, 0.3% is not a significant reduction in hiring, compared to the IDA workforce of over 300,000. There is evidence to suggest that Ireland will continue to have success with regards to foreign investment going forward. 

Investors, workers, and students alike should consider the future of MNEs in Ireland with a critical view. Although confidence is understandable with consideration in the continued investment in the country, Ireland is no longer a certain destination for MNEs, particularly in ICT.