Ireland worries about losing ‘sacrosanct’ low tax regime

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

The American semiconductor company has since invested $ 15 billion and created more than 5,000 direct jobs on a sprawling campus where it manufactures chips and develops artificial intelligence. He donates materials to local schools and pulls out his checkbook for community groups and charities in neighboring villages.

“If you throw a stone, it will land on someone who worked, or someone who is currently working, at Intel,” said City Councilor Bernard Caldwell. “We are the enemy of a lot of towns and cities because of what Intel has put in place.”

Awards reaped by cities like Leixlip help explain the enduring support for Ireland’s low corporate tax philosophy – and why the country has sided with eight countries, including Barbados, against a minimum levy global supported by the US, China, India and most of the EU countries.

The changes agreed to last week in talks held by the OECD include a minimum tax levy of 15 percent and a system where countries could tax large companies based on where they generate income. They could cost Ireland 2 billion euros per year in lost tax revenue, warned Irish Finance Minister Paschal Donohoe. The other European holdouts are Hungary and Estonia.

Once considered the poor man of Western Europe, Ireland has struggled with high unemployment and out-migration for decades, only seeing an extended period of economic success for the first time during the Celtic Tiger Boom. in the mid-1990s. In 2009, Dell’s decision to move its European manufacturing base to Poland was a reminder that success could quickly collapse. This story indicates a reluctance to abandon a diet that provided stable income.

Intel’s new microchip manufacturing plant under construction at Leixlip © Barrow Coakley

“The majority of Irish people agree that since the late 1950s Ireland has had a deliberate and successful strategy of having a weak, non-binding and stable corporate tax system and that it has attracted a lot of foreign investment. “said John Bruton. , Prime Minister from 1994 to 1997.

Ireland’s lower corporate tax rate – currently fixed at 12.5% ​​- increased productivity by 4 percentage points, or around € 6 billion between 1994 and 2005, researchers from the independent think tank of the Economic and Social Research Institute estimated in a 2011 article. The country accounts for less than 3% of the EU’s economic activity, but attracted more than 8% of the bloc’s net foreign direct investment from 1990 to 2020, according to OECD figures.

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

“If you knock on a door, nobody will say, I think we should raise the corporate tax rate,” said Joe Neville, Leixlip adviser for Fine Gael, the second largest party in the ruling coalition. Ireland. “If something works. . . and we think it offers jobs and opportunities, so you can understand the reluctance to change it.

Views are starting to change in some neighborhoods, albeit marginally. Richard Boyd Barrett, a lawmaker for the People Before Profit party – holding five of Ireland’s 160 seats – said stories of multinationals using loopholes to pay “pitifully low” taxes called the “sacrosanct” regime into question from Ireland.

One of these stories features Google, which avoided tax on $ 13 billion in profits at his Irish holding company in 2019 thanks to what has been dubbed the ‘Irish double loophole’ (and which was phased out between 2015 and 2020).

Leixlip adviser Joe Neville: “If you knock on a door, nobody will say, I think we should increase the corporate tax rate” © Paulo Nunes dos Santos / FT

“Some people find it scandalous how little tax big business pays,” says Boyd Barrett. “But it’s also a case where there’s that fear there. . . that multinationals could pull out if there was a rate change.

Karl Rogers, an investment professional who worked in North America before returning to Dublin, said he viewed a lower rate as “of course excellent for Ireland Inc”. Now he wonders if there is “more harm than good to the wealth of the average Irish citizen by having such a low corporation tax with such a high personal tax?” Ireland’s highest marginal tax rate is 40% for income over € 39,300, plus a universal payroll tax of 8% for income over € 49,357.

Raymond Hegarty, an executive who led the start-up of five multinationals in Ireland, recalls working for a Japanese company that didn’t rank taxation among its top five selection criteria and instead looked at things like skills and welcome approach to the IDE. Language was also essential: “Our Japanese president. . . was not going to learn a third language to settle in a non-English speaking country.

Connor Heaney, managing director of logistics company CXC Global, said corporate tax was “a draw but not the only consideration” when they chose Ireland as their Emea hub in 2015. They also liked Ireland’s location, its network of multinationals and found it “by far the easiest place to start a business” of the 60 markets they worked in. “If the corporate tax rate in Ireland had to change, that wouldn’t require a change from here.We love Ireland.

In Leixlip, urged to consider giving in to international pressure, people remain cautious. It wouldn’t be a big blow if the 12.5% ​​were to be raised to the 15% agreed to at the OECD, because “Intel is too big a company to leave Ireland,” Caldwell said. Neville said he “wouldn’t be afraid” to raise Ireland’s rate to 15 percent “if we had to.”

“Intel came here when I was a kid, and the question arose, why Leixlip, why Ireland,” he said. “Now Ireland is a major hub. “

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