Will Ireland’s corporate tax increase cause tech companies to leave Dublin? | Ireland

Ten years ago, Dublin was dubbed the ‘home’ of Silicon Valley with tech superstars including Mark Zuckerberg and Elon Musk lining up for offices, enjoying local Irish hospitality and low taxes.

But while the decision of Google, Facebook, Yahoo, LinkedIn, eBay, Amazon and more recently TikTok to set up their European headquarters in the Irish capital has helped solidify its reputation as one of the main technology hubs of region, questions now arise as to whether they will stay.

Earlier this month, Ireland signed landmark reforms to a global minimum corporate tax rate of 15%, down from 12.5% ​​currently set by Dublin, as part of the most significant changes to the tax system of the country for almost 20 years.

Some analysts have argued that the country’s economic model could be seriously compromised, while Irish Finance Minister Paschal Donohoe said earlier this year that up to € 2bn (£ 1.7bn ) per year in tax revenue could be lost by 2025. However, there is hope that the changes may not turn out to be as existential as they first appear.

“In the short to medium term, no, there will be no out-migration, the drop from 12.5% ​​to 15% is not that big,” said Seamus Coffey, economist at University College Cork and former chairman of the Irish Fiscal Advisory. Advice.

Ireland had played hard in the global tax negotiations that were taking place between 140 countries at the OECD in Paris, after nearly a decade of failure by world leaders to agree on reforms that would equip the tax system of the digital age.

Dublin refused to join a deal earlier this year and did not give in until early this month at the 11th hour of negotiations after securing a key concession. that it would not be increased in the future.

However, the reality is that many big tech companies never paid the 12.5% ​​overall rate set by Ireland in the first place.

A Bloomberg survey in 2010 showed how Google reduced its overseas tax rate to just 2.4% by using an aggressive avoidance scheme dubbed the ‘Irish and Dutch double sandwich’ to effectively shift the income generated across Europe overseas to places like Bermuda, where the tax rate was zero.

These programs were banned in 2015, giving companies five years’ notice to comply.

However, while such arrangements undoubtedly helped lure Google and Facebook to Ireland in the 2000s, they were just the latest in a wave of more than 1,500 foreign companies – including 800 from the United States – drawn to the low tax philosophy of the country’s industrial development. Agency since its founding in 1949.

Before them, IBM, Intel, Pfizer and Apple walked the red carpet. For at least a decade, Allergan has produced the world’s supply of Botox in Westport, County Mayo, on the country’s windswept Atlantic coast.

“The low tax rate started in the 1960s at zero and then rose to 10%,” Coffey said. “The aim has never been to generate corporate tax revenue, but to use relatively low corporate taxes to incentivize companies to locate in Ireland and allow them to build large factories and facilities. And then we have a job.

There are other tempting factors in multinationals. Chinese company TikTok moved its headquarters to Dublin in 2018, long after the wall was written for the tax evasion loophole.

“Young companies are focused on things that will kill them or help them scale in the near future. Corporate tax is not one of them, ”said Stephen McIntyre, former director of Twitter in Ireland and partner of Frontline Ventures, a venture capital firm formed in Dublin and London to help US technology companies develop in Europe.

Joe Biden and the OECD want to promote this idea of ​​competition on non-tax bases, seeing the reforms as putting an end to the “race to the bottom” between countries.

“When startups come to Europe, they care more about hiring experienced people and acquiring customers. They also like places where it is easy to do business, ”added McIntyre.

He said that for Ireland “there are cultural ties to the United States, fluency in the English language is widespread, and employment law makes it easier to hire and fire. Corporate tax is one of the top 10 issues, but not the top five. “

If Google’s historic use of taxable income transfer schemes abroad gave Ireland a reputation as a place where tax could be avoided, the annual cash flow recorded by the Irish Treasury paints a picture different.

The government’s budget watchdog warned that just 10 companies accounted for 56% of net corporate tax revenue in 2019, underscoring the risks of the OECD plan.

A former senior Irish tax official estimates that around 30% of corporate tax in Ireland comes from just three companies – Microsoft, then Apple and Pfizer, which has been in the country since 1969. Up to 40% comes from Microsoft and Apple, he said.

He agrees with Coffey that raising taxes won’t be a cliff.

“Companies like Microsoft will be years ahead. They don’t pay their tax advisers more than a million dollars just to sit on their butt. They are very intelligent. These companies will have their plans, their strategies in place for years, ”said the source.

One danger for Ireland is that corporate tax reforms could go further.

During OECD discussions this summer, sources said France and Germany were pushing for a higher global minimum tax rate; with the sub-text to forge closer economic integration by limiting tax competition in the 27-member bloc.

Donohoe recently said he was assured by eliminating “at least” that this would not be a problem for years to come.

Some EU countries, including Ireland, Hungary and Estonia, have drawn the ire of their neighbors for setting low corporate tax rates; reflected in the bitter dispute between Dublin and Brussels over 13 billion euros in taxes allegedly owed by Apple.

Across the 37 OECD member countries, the overall average corporate tax rate is around 23%.

Coffey believes France’s anger has more to do with the per capita corporate tax rate in Ireland. It is double and tends to triple that of France and Germany.

“The bulk of corporate tax is paid by American businesses in Ireland. You can imagine that in France, it is by French companies, ”he said.

A greater danger is the prospect of the OECD pushing companies to pay taxes in their countries of activity – this fall’s reform was primarily aimed at eliminating offshoring.

The Irish Fiscal Advisory Council has estimated that around € 5 billion in annual corporate tax revenue is linked to ‘surplus’ activity that may not have taken place in Ireland.

Coffey said Irish corporate tax revenues have tripled over the past seven years from € 4.5 billion to € 14 billion, thanks to a huge injection from US companies. “But if they can rise in such an unexplained way, then it is also possible that they fall in an equally unexplained way.”