Last weekend’s news that the G7 group of wealthy nations plan to extract more tax from high-profile tech corporations may be good news for those who feel these super rich companies are not paying their fair share. However, this new plan may be bad news for Ireland, the most successful country in Europe when it comes to attracting Foreign Direct Investment as Ken Murray reports from Dublin.
When finance ministers from the seven richest nations on earth gathered at Lancaster House in London last weekend to discuss their respective and global fiscal issues following on from the COVID-19 pandemic, one particular person from Ireland sat in the room as an apprehensive observer.
Irish Finance Minister Pascal Donohoe (pictured) was there in his role as chairman of the European Commission euro group. It’s the all-important Committee that represents the 19 EU states that use the euro currency on a daily basis.
After much too-ing and fro-ing, the G7 and EU concluded their meeting with a communiqué stating that corporate or business tax will be raised to a minimum rate of 15% with an emphasis that the money will be paid in the country where the production operation is based rather than the location of the corporation HQ.
To the average Joe and Mary Bloggs living in downtown Berlin, Rome, London or Paris, 15% is no big deal but in Ireland where the corporate tax rate is 12.5%, the 2.5% gap could be the difference in attracting or losing jobs as foreign corporations look for the cheapest and most attractive options to set up European hubs to maximize their respective profits and increase their stock market value.
At a time when Ireland’s competitiveness is suffering the most over Brexit as it now costs more to move product through the UK to get to mainland Europe and vice-versa, the last thing the Irish government needs is would-be US investors by-passing the country because it has lost its hitherto attractive incentive.
“I am very confident that while there is change coming…this is change we can respond to,” said Minister Donoghue afterwards with his Irish Finance ‘hat’ on, suggesting that the Dublin Government will do all in its power to hold on to the foreign corporations in Ireland who play a huge part in propping up the Country’s GDP figures.
According to the Irish Fiscal Advisory Council, the increase in corporation tax for foreign investors could cost the exchequer in Ireland a hefty €3.5 billion per year, an unwelcome prediction at a time when the Country has just added €50 billion to its national debt due to Covid.
This is a not a lot of money in each of the G7 nations but in the Republic of Ireland where the population is just under five million, €3.5 billion pays a lot of bills!
As it is, attracting FDI or foreign direct investors in to Ireland has been a hugely successful policy by the Irish Industrial Development Authority since the 1980s.
When the Irish economy was stagnant then, FDI was difficult due to the ongoing war in Northern Ireland while the mass emigration of highly skilled college graduates to foreign states proved to be politically unpopular.
As a result, a major plan to attract leading US corporations in to Ireland became a number one priority with the Irish state, metaphorically speaking, ‘bending over backwards’ to lure these companies in with a wide array of incentives and supports.
The introduction of a corporate tax rate of 12.5%, the evolving fact that Ireland is now the largest English-speaking country in the EU and with a steady supply of highly skilled tech graduates from its growing number of industry-driven colleges, the Country has become something of a magnet for major US tech giants.
With a special income tax rate in place for CEOs as the ultimate sweetener, ten of the major tech companies in the World have now chosen Ireland as their European base.
These include Apple, Microsoft, Facebook, Google, Twitter, Pay Pal, Linkedin, Intel, eBay and Tik Tok. Add on Pfizer, Wyeth and Eli Lilly pharmaceuticals to name some of many, the 1600 or so foreign companies operating in Ireland who employ a minimum of 250,000 people, have contributed enormously to the Irish exchequer and not surprisingly, the Government in Dublin is keen to retain them and continue the determined push to attract more.
Despite the fear that the expected ‘level playing pitch’ could see Ireland less attractive than other EU states for attracting new business, Pascal Donoghue indicated at the weekend that the G7 statement is not the end of the matter.
Speaking to reporters, he emphasised than an OECD meeting later this year is likely to determine where non-G7 countries stand in relation to corporation tax on foreign investors.
“Today is a very clear signal regarding the larger economies’ view of that process but we have some time to go on the OECD process and even when that concludes, the actual agreement has to be implemented.
“The implementation of the last agreement on corporate tax took many years. [That] will be the case with this again both from a legislation and implementation point of view.”
In the meantime, as the Irish Government worries that Ireland may not be as financially attractive for FDI investors in the future if these revised tax rates take hold, Minister Donoghue indicated that he will present his case to US Treasury Secretary Janet Yellen and the OECD Secretariat to make the point that small countries need to be allowed to remain competitive otherwise their respective economies will struggle.
“[I have] continued to make the case for legitimate tax competition inside certain boundaries,” he said, suggesting that the Irish Government will continue to fight a determined rear guard action to retain its attractive 12.5% tax rate.
The matter is likely to dominate the next meeting of G20 countries when they meet in Rome next October.