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August 19, 2024 - 11:50am
In a recent interview, a senior economic adviser to Irish Taoiseach Simon Harris said that an exodus of Big Tech companies from Ireland could “wipe out” the country’s economy and eclipse the impact of the 2008 banking crash.
Stephen Kinsella, a university professor turned Government adviser, issued the stark warning as jitters emerged about Ireland’s place as the world’s Big Tech capital. Citing the consequences of Dell’s exit from the Irish county of Limerick in 2009 — in which 4,000 jobs were lost overnight — Kinsella highlighted that Apple has 6,000 staff in County Cork alone, and that if it were to jump ship all those jobs would go too.
Aside from the employment implications, the Irish state’s coffers would also be heavily impacted. “Apple, Microsoft and Pfizer probably pay something like 60% of all corporation taxes in Ireland. That’s a huge amount of money,” Kinsella claimed. “So to lose the top three biggest… basically wipes us out.”
He also provided an incisive analogy: if the Irish Government were a company, over 20% of sales would come from large US multinational corporations. As such, if the US pharmaceutical and technology sectors are not doing well then Ireland naturally follows suit.
This scenario may become a reality in the not-too-distant future as Pillar 2 — the OECD’s landmark global tax harmonisation deal — is set to be implemented later this year. With that, Ireland’s corporate tax rate will increase from the current low rate of 12.5% to 15% on all companies with an annual turnover of €750 million, potentially ending the country’s competitive edge as a tax haven.
Ireland was instrumental in this arrangement getting over the finishing line after securing a commitment to remove the term “at least” from the original text to prevent future corporate tax increases further down the line. But while 99% of companies operating in Ireland will continue to pay the 12.5% rate, around 1,600 multinationals — mainly US firms — will fall under the new harmonised figure.
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SubscribeIreland would of course deserve it
“Leprechaun economics” – are we allowed to say that without causing offence? 🙂
Obviously it should be “Leprechaunomics”.
It’s a puzzle, isn’t it? The government collects all this money but there are no houses for young families and public services are crumbling.
Brussels will not tolerate this arrangement forever, and the Irish have known this perfectly well for some time. They’re making hay while the sun shines, that’s all.
I do hope they have a plan for later though. Maybe open up their energy markets to next-gen nuclear power or something.
You would think that should be true. And yet the EU has been tolerating it for 20 years or more now. Just as they tolerate Luxembourg as the EU’s in-house tax haven. You have to wonder if they actually prefer it this way. I’ve never seen any real effort from the EU side to sort this stuff out.
The ongoing Euro crisis has helped Ireland keep fiscal harmonisation beneath the priority of sorting out the monetary mechanics of the Eurozone. But that won’t work forever, mainly because the Euro’s defects make it impossible to separate fiscal and monetary policy in the first place.
Perhaps it’s just a benefit from being being a small economy?
Effectively Ireland is an on-shore tax haven, but small enough for Brussels to ignore when it has so much more on its plate . Especially as Ireland can always be relied upon to be the EU poster child when required.
Let’s be honest, the EU is a great swizz if your are one of the 20 or so small countries like Ireland – all the financial upsides of a large country and little downsides. Obvs much less so if you are Italy, Spain, France – but it’s too late for them now.
The Double Irish tax avoidance scheme was abolished to similar fanfare more than a decade ago. Corporate tax avoidance via Ireland in the following years has multiplied. This was no accident and Brussels was complicit in the tax rules that allowed it to happen.
Nobody is going to leave because of a rise from 12.5% to 15.0%.
Of course, what it also means is that no one new would come.
Especially when Pillar Two’s new ways of lowering the stated profit on which Ireland’s 2.5% top up tax is applied mean Ireland might become an even more attractive place to shift profits and avoid tax….
Don’t put all your eggs in one basket. Especially when that basket may be a QE-infused hype train producing bubbles within bubbles and widespread rent seeking instead of a vibrant economy.
If you believe there is “interdependence” between the U.S. and an Island of 5 million people, I have some cryptocurrency to sell you.
Well, it’s explained in the article. US multinationals depend upon the Irish corporation tax rate to access the entire EU market in a very tax-efficient manner, not merely that of Ireland itself. The vast tax revenues that result from a whole continent’s worth of profits being declared to the Irish Exchequer alone make the Irish state dependent upon the continued presence of these multinationals in Ireland.
If it is the case, as you say, of Ireland collecting US Corp tax on profits of entire EU activities, only a matter of time before Brussels demands redistribution anyway.
Exactly the point I made above.
It is amazing that Ireland, with such a small population whom are taxable, has not turned itself into a low tax neo-Switzerland? By the same token it is also depressing that successive British governments have failed to appreciate the wisdom of attracting corporate domiciles via specialist low taxes. What is even more both amazing and depressing is the relatively simple mathematics, so loathed by The Left, that clearly demonstrate that an economy thrives of the distributable earnings and savings of its people and their and other attracted investment, not on Governments flagrant, unchecked splashing of taxpayers money: and why, pray, does any Government not pay its employees ” net” as their ” tax revenue” is a perfectly dishonest illusion whose source was the government in the first place… but to so so, of course, would expose Government abuse of their tax revenue ” value” in economic statistics, as the same as privately enployed taxpayers… as oft says, no one knows or who cares who the Swiss PM is, because the nation works like clockwork regardless!
Yes, quite why the UK doesn’t now offer a better deal than Ireland are offering to bring those companies to London is beyond me.
Well because we were never in the Euro, and we’re now not in the EU either, so the EU won’t allow UK-based multinationals to declare profits on EU-wide earnings in the UK. Single Market 4 pillars: movement of goods, services, capital and labour.
I’m not criticising Brexit BTW: even had the UK managed to do the Irish corp tax trick, EU membership still would never be worth it.
If the Eurozone was such a great idea, why did Switzerland and Norway not join?
It wasn’t a great idea. It was a terrible idea, and still is.
Because the EU is about stopping Germany invading France and France controlling Germany.as de Gaulle said ” France and Germany are Europe, the rest are trimmings “.
I think Ireland as one of the only colonized countries in EU never had any corporate tax income (since it had no corporations much) until early to mid 20th century. So they didn’t rely on income from same and could set a low rate to attract investment. Other countries couldn’t simply slash a tax that was essential to running their economies.
Follow the money though, we don’t live in an industrial society anymore. These companies are known for not running profits for long periods, having high P/E ratios yet massively increasing their value. So where is all that money really coming from? Well, one way to understand this is that governments/central banks do not tax to spend but spend to tax. And not taxing appropriately then creates inflation in certain parts of the economy, particularly the asset economy. Meaning that some of the taxing happens essentially through the backdoor eventually, for example, when normal people can no longer afford normal things like housing. Something the Irish definitely notice as far as I understand. Moreover, right now we also see private equity swallowing (tech) companies leaving a waste land and unemployment outside of the US in the process. So by allowing so much speculative global capital you can destroy a lot of your local essential economy in the long run. Sometimes all of it feels a bit like a Ponzi really.
Interesting essay. Thanks did this.
If 99% of companies stay, and CT rises 20% from 12.5% to 15% then won’t that make the tax take a lot higher?
Sadly I can’t see socialist Labour cutting the UK’s from its current 25% either, so we’ll not pick up any of the crumbs from the 1% that may leave the RoI.
I suppose it’s August and creative headlines are needed at Unherd and elsewhere. There is no doubting the risks outlined but nothing stands still. Dell went to Poland and a decade earlier Digital (remember them?) closed down the huge Galway plant. Both Limerick and Galway are thriving cities at the moment. If I write an article saying Switzerland will be in trouble if people pull out their money will anyone read it?
Agreed. While it’s true that there is a concentration of capital that Ireland are very dependent upon, it’s a much more resilient setup than 2008.
That said, I do like it when journalists shed light on the true economy of Ireland. Politicians are too keen on presenting the nation as some sort of modern European miracle, when economically speaking, it’s more like a 51st US State.
15% of what? That is the key question. If you redefine how profit is calculated, then you can raise the headline corporation tax rate and lower the *effective* tax rate and remain a corporate tax haven.
The Double Irish tax avoidance scheme was abolished a decade ago as part of an earlier coordinated global effort to reduce tax base erosion and profit shifting (BEPS). Yet in the years that followed Irish corporate tax avoidance mushroomed, and so did Irish state tax receipts. The devil was in the detail and after millions spent on lobbying by Ireland and US multinationals, Ireland was able to offer the canny detail of new and different methods for BEPS tax avoidance.
The details of Pillar Two mean a similar effect is likely. For starters, Ireland won’t just increase corporation tax to 15%. Instead, it will create a new special top up tax of 2.5% for affected companies, specially approved by the EU. The combined agregate tax will be calculated using a new calculation called “excess profit”, not plain old taxable profit. Before the top up tax is applied, companies will be allowed to make a “substance-based income exclusion”, which deducts 10% of payroll costs and 8% of tangible asset value. Further, US multinationals in Ireland are sitting on €70bn of transferred intellectual property that will be deductible from excess profits for decades to come. Lastly, Pillar Two allows “refundable tax subsidies”, quite simply a wide open door for states to give individual companies a special credit to reduce their excess profit calculation across multiple years. You don’t need to be an international tax specialist to see how these details will be used to ensure *effective* corporation tax in Ireland remains low for favoured US multinationals.
In all of this, the revolutionary precedent being set is overlooked. For the first time in history, the majority of independent sovereign states will share binding, irreversible, common tax legislation beyond the control of the states, the people, democracy itself. And all it took was a nominal, highly flexible, increase in the headline corporation tax to just 15%.
Another lame economics piece from unherd. I find it really lacks original economics analysis. All these stats are just taken as real and genuine. Living in ireland, I can tell you these companies arent going anywhere but also we have a bs economy where young people cant buy or rent a house. More originality please
So where would these companies go then and why? to a non native English speaking EU country? with same tax rate? leave Ireland with the youngest – and very well educated – population in EU and a very large build out of data centres (the heart of the Cloud and now a vital part of AI too?). Never mind the immense good will from US towards an island where over 40-50 million US citizens can trace an ancestor to.
When the dust settles on the corporation tax issue, IRL will be seen as having been the cause of its own (possible) downfall (if the MNC pipeline dries up) because we refused to increase CPT to 15% twenty + years ago as we could and should have done. Moreover, we stupidly and aggressively not only pushed 12.5% too hard but we went much further with the double Irish and other schemes. It was stupidity on an epic scale, similar to the decision to join the euro.