Irish corporation tax has risen, will businesses leave?

The corporate tax rate in Ireland was recently reduced from 12.5% ​​to 15%. This was a reputedly low tax rate and a notorious aggravation for some countries. Now around 1,500 companies in Ireland will be taxed at a higher rate.

It has attracted a tremendous amount of business to our shores. Ireland is the European headquarters of a large number of multinational companies, including: Apply, eBay, Dropbox, Pfizer, Facebook, Google, Microsoft, Salesforce, Shopify, Slack, TikTok and Twitter.

Ireland has fought to keep tax rates low

Finance Minister Paschal Donohoe has previously said the loss of tax revenue could reach 2 billion euros a year by 2020, according to Reuters.

During the global tax negotiations that took place between 140 countries in Paris, Ireland gave a long fight at the OECD before agreeing to increase its level of taxation, as reported by The Irish Times. Earlier in the year, Ireland refused to sign the deal. He relented earlier this month only after securing a key concession: that the wording “at least” be dropped when talking about a minimum tax rate, reports The Journal. This gives the government more security that the tax rate will not be increased again.

An OECD report last year found that Ireland was the most dependent country in the world on tax revenues from foreign multinational companies, reported The Irish Times. This leaves us vulnerable, especially considering that 56% of net corporation tax revenue in Ireland in 2019 came from just 10 companies, according to Revenue.

Will businesses stay in Ireland?

Taxes, however, are not the only reason multinational companies are making Ireland a home away from home. The ease of doing business, the English-speaking workforce and access to the European market are all attractions for these companies.

However, reforms for an overall minimum corporate tax rate of 15% mean that the country’s major attraction has just passed away.

The government was so hesitant to drop the tax rate as it is seen as one of the main drivers for attracting Foreign Direct Investment (FDI) into the country. EuroNews reports that more than 800 American companies employ 180,000 people here. Many of these people hold well-paying jobs. American investments bring in 4.5 billion euros each year to the country.

Tom Woods from KPMG, believes that Ireland will retain its attractiveness for FDI despite the higher tax rate. Ireland will continue to tax companies at 12.5% ​​if they have a turnover of less than €750 million per year.

Seamus Coffey, an economist at University College Cork, said The Guardian that he did not think there would be an exodus of companies in the short or medium term.

Since the mid-20th century, Ireland has aggressively attracted multinational corporations to Ireland.

Coffey said the purpose of low taxes, which started at zero, was to create jobs, not generate tax revenue.

However, over the past seven years, corporate tax revenue has fallen from 4.5 billion euros to 14 billion euros, according to Coffey.

“If they can go up in such an unexplained way, it’s also possible that they go down in an equally unexplained way,” he said.

Many companies in Ireland did not pay the 12.5% ​​anyway

Many multinational companies in Ireland simply did not pay 12.5% ​​tax, but much lower.

A 2010 Bloomberg investigation shows that Google shifted its profits between Ireland and the Netherlands to create a “double Irish, Dutch sandwich” to pay just 2.4% tax.

The country has been repeatedly accused of being a tax haven, including by the EU’s tax observatory, RTÉ reports.