Ireland is concerned about losing its “sacrosanct” low-tax regime

For the 16,000 inhabitants of Leixlip, a suburb west of Dublin, economic prosperity has gone hand in hand with Ireland’s low-tax strategy since 1989, when Intel moved into the city.

Since then, the U.S. semiconductor company has invested $ 15 billion and created more than 5,000 direct jobs on an extensive campus where it manufactures chips and develops artificial intelligence. It equips local schools and pulls out its checkbook for community groups and charities in neighboring villages.

“If you throw a stone, it would land someone who has worked or someone who currently works at Intel,” says local councilor Bernard Caldwell. “We are enemies of many cities because of what Intel put up.”

The profits made by cities like Leixlip help explain the enduring support for the philosophy of low corporation tax in Ireland, and why the country has positioned itself alongside eight nations, including Barbados, against a global minimum tax. supported by the US, China, India and most EU countries.

The changes agreed last week in the framework of the talks held by the OECD include a minimum tax collection of 15% and a system by which countries can tax large companies depending on where they generate revenue. It could cost Ireland € 2 billion a year in lost tax revenue, warned Irish Finance Minister Paschal Donohoe. The other European stocks are Hungary and Estonia.

Once considered the poorest in Western Europe, Ireland struggled with high unemployment and emigration for decades only to enjoy for the first time a prolonged period of economic success during the so-called mid-year Celtic Tiger boom ninety. In 2009, Dell’s decision to move its European manufacturing base to Poland recalled that success could be unleashed quickly. That story reports the reluctance to leave a regime that has generated steady income.

“Most Irish people recognize that since the late 1950s Ireland has had a deliberate and successful strategy of having a low, not heavy and stable corporate taxation system and that it has attracted large foreign investment,” said John Bruton , Prime Minister from 1994 to 1997.

Ireland’s lowest corporate tax rate (currently 12.5%) increased productivity by 4 percentage points, or about 6 billion euros between 1994 and 2005, according to think-tank researchers independent of the Institute for Economic and Social Research in a 2011 document. The country accounted for less than 3% of EU economic activity, but attracted more than 8% of the bloc’s net foreign direct investment between 1990 and 2020, according to OECD data.

Frank Barry, an economist at Trinity College Dublin, says he is “very concerned” about the consequences of a global minimum rate: “We can talk a lot about our educated workforce, our English language and being part of the EU (as attractions) for foreign direct investment) … but they are all built on the cornerstone of the corporate tax regime ”.

“If you knock on a door, no one will say it, I think we should raise the corporate tax rate,” says Joe Neville, Leixlip councilor for Fine Gael, the ruling coalition’s second-largest party. of Ireland. “If something works. . . and we believe it provides employment and opportunities so that you can understand the reluctance to change it. “

Opinions are beginning to change in some sectors, albeit marginally. Richard Boyd Barrett, a legislator for the People Before Profit party (which holds five of Ireland’s 160 seats), said stories of multinationals using loopholes to pay “sadly low” levels of taxes challenged the “sacrosanct” regime of Ireland.

One such story includes Google, which taxes avoided with profits of $ 13 billion in its Irish holding company in 2019 thanks to the so-called “Irish double” gap (which was phased out between 2015 and 2020).

“Some people think it’s outrageous that the few taxes big companies pay,” says Boyd Barrett. “But there is also the case that there is this fear. . . that multinationals could come out if there is a change in the rate “.

Karl Rogers, an investment professional who worked in North America before returning to Dublin, says he used to consider a lower rate as “of course, fantastic for Ireland Inc.” Now, one wonders if there is “more harm than the wealth of the average Irish citizen than the good of having such a low corporate tax and such a high personal tax?” Ireland’s highest marginal tax rate is 40% on income above € 39,300, to which is added a universal social charge of 8% on income over € 49,357.

Raymond Hegarty, an executive who managed the start-up of five multinationals in Ireland, recalls working for a Japanese company that did not classify taxes among the top five selection criteria and instead looked at things such as skills and a welcome approach to FDI. The language was also key: “Our Japanese president. . . I wasn’t going to learn a third language to place it in a country that didn’t speak English. “

Connor Heaney, managing director of logistics firm CXC Global, says the corporate tax was an “attractive but not the only consideration” when they chose Ireland as their Emea hub in 2015. They also liked the location of Ireland, its network of multinationals and found it “by far the easiest place to set up a business” in the 60 markets in which they worked. “If the Irish corporate tax rate changed, I would not impose a decision here. We like Ireland. “

In Leixlip, when they are pushed to consider the fall of international pressure, minds remain cautious. It wouldn’t be a big deal if it increased by 12.5%, as “Intel is too big a company to leave Ireland,” Caldwell said. Neville said he “would not be afraid” to raise Ireland’s rate to 15% “if we had to”.

“Intel came here when I was little and there was the question of why Leixlip, why Ireland,” he said. “Ireland is now a major hub.”