The stability, consistency and transparency of the corporate tax rate and regime in Ireland has been an important asset for Ireland in promoting an attractive business environment for foreign direct investment.
Investing abroad is a risky business with few certainties. At a time when corporate tax rates changed more frequently in other jurisdictions, Ireland’s commitment to the 12.5% rate – as reiterated on back-to-back budget days – has provided investors with rare certainty .
The government’s decision to increase the corporate tax rate to 15% for the relatively small cohort of companies with global annual turnover exceeding 750 million euros clearly represents a significant shift in the tax offer of Ireland to investors. Global circumstances and Ireland’s constructive participation in the multilateral process necessitated this change.
As we move to a rate of 15% for companies that reach the turnover threshold, Ireland will once again emphasize the stability and consistency of this rate going forward. The 12.5% rate will continue to apply to the vast majority of businesses in Ireland.
In the days to come, IDA Ireland will continue to engage with multinationals on Ireland’s approval of the global 15% minimum and the broader set of international tax reforms agreed at the OECD. I am heading to the United States next week to discuss firsthand with existing and potential investors on this and other issues.
A full assessment of the potential effects of changes on FDI globally and in Ireland will only be possible once we have more details on how the reforms will be implemented.
Our early conversations with investors indicate that the move to a 15% corporate tax rate will not impact their existing investments in Ireland. IDA corporate clients welcomed Ireland’s active and open dialogue with the OECD process and the public consultation organized by the Department of Finance.
Ireland’s reasoned position has been well signaled, and ultimately our agreement on the overall minimum rate will come as no surprise to investors.
As the discussions on global taxation gained momentum, we continued to see a significant flow of FDI projects in Ireland. IDA saw remarkably resilient results in 2020 at the height of the Covid-19 pandemic, and in the first half of 2021, we saw performance return to near-record pre-pandemic levels. The investment pipeline remains strong.
For the companies IDA works with – leaders in their fields, from high-tech manufacturing to knowledge-intensive services – the factors that drive them to invest and reinvest here are manifold and often unique to the company in question. It is difficult to isolate corporate tax as a factor behind Ireland’s attractiveness for FDI and its importance varies among our clientele depending on their stage of development.
Tax, be it the corporate rate or the level of personal income tax, is important, as is Ireland’s track record as a place of business, the availability of skilled talents, the quality and resilience of infrastructure, cost competitiveness, public investment in education and innovation, to name a few.
We have also seen over the past year the resilience and strength of the Irish State and the Irish people in a time of immense adversity.
The change in the rate will not make Ireland uncompetitive in attracting FDI. Many of our major competitors currently have corporate tax rates above 15% and should not lower them. An Ireland with a stable corporate tax rate of 15%, within a global framework, will be in a good position to succeed, provided we ensure that we have a business environment suitable for the 21st century economy.
Even though the corporate tax rate had remained unchanged, it was clear that in a fiercely competitive environment, we needed to preserve our strengths and address our vulnerabilities.
Ireland has attracted a much larger share of FDI than one might expect, given the size of our population, providing countless opportunities for people in every region of the country. From an economically disadvantaged island on the outskirts of Europe, FDI has transformed Ireland into a hub at the center of global value chains that underpin the modern global economy.
Multinationals dominate Irish exports, spend on R&D and contribute to the chessboard. More importantly, more than 257,000 people are directly employed in high value-added jobs by IDA client firms, rising to over 463,000, including indirect jobs with FDI providers and partners. sales representatives throughout the country.
In addition to their transformative impact on our economy and society, multinationals have demonstrated longevity and commitment to Ireland. FDI is anchored in Ireland through significant investments in people and capital. One third of IDA’s existing customer base has been in Ireland for 20 years or more.
The coming decade will bring many challenges and opportunities, especially as technological and green transitions accelerate.
Multinationals can drive Ireland’s transition to a digital, carbon-free economy.
The new international corporate tax environment is a further component of an era already characterized by change. Ireland has adapted well to changing circumstances in the past. If we maintain our competitive advantage in all parts of our FDI value proposition, I believe we will adapt and continue to thrive.
Martin Shanahan is Managing Director of IDA Ireland