On the crowded waterfront quay of Dublin’s Silicon Docks district, Google’s European headquarters loom over the skyline. Facebook and Twitter are neighbors. The European bases for Apple, Pfizer and hundreds of American multinationals are implanted around the country, symbols of the trade produced by Ireland’s famous low corporate taxes.
But the model that has driven the so-called Celtic Tiger economy for decades is in jeopardy as a coalition of 130 nations works to revise a global tax system that Ireland relies on to entice companies looking to reduce taxes. they pay.
“Ireland is largely a tax haven operating in Europe, so it makes sense that Ireland would oppose this as harshly as possible,” said Alex Cobham, chief executive of the Tax Justice Network, a group that fights tax evasion. “The Celtic Tiger is something to be proud of, and if the model breaks down, they should look like they are defending it as much as possible.”
The battle lines drawn by the Irish government have thrown a global focus on the nation of five million people – and created controversy among the Irish themselves.
At stake are Ireland’s low official corporate tax rate of 12.5 per cent and a tax regime that helps global companies domiciled in avoiding paying taxes to other countries where they make a profit, a setup that has put billions of euros in Ireland’s tax coffers. and created hundreds of thousands of jobs.
Ireland was one of only nine countries that did not sign the erroneous framework last week, as provided by the Organization for Economic Co-operation and Development, which could undermine these benefits. The agreement would introduce a new global minimum tax rate of 15 percent and force technology and retail giants to pay taxes where their goods or services were sold, rather than where the company was headquartered. The details of the agreement are expected to be finalized in October, after which each country’s government will have to adopt it.
While Ireland has said it supports many aspects of the proposal, it joins a group of low-tax countries to push for a G20 summit on terms that allow small countries to compensate for the loss of any tax advantage.
Ireland will seek a “comprehensive, sustainable and equitable agreement”, Finance Minister Paschal Donohoe said in a statement last week.
Almost all major companies try to minimize its taxes. But tax rates have become a contentious issue for world governments as public finances deteriorate after more than a year of fighting the pandemic. A 15 percent minimum tax would generate $ 150 billion. In additional tax revenue each year, the OECD has said.
The stakes are particularly high for Ireland, which is in the company of notorious tax havens such as Barbados, as it is fencing with the United States and its largest ally in Europe.
Some may say that the optics are not good – Ireland risks looking like it will deprive other countries of their fair share of tax revenue – and the government in Dublin has been reluctant in its statements on the subject. The Ministry of Finance rejected interview requests and did not answer written questions. Similarly, multinational companies that have benefited from the low-tax system have been clearly silent and rejected requests to discuss the issue.
Behind the scenes, lobbying companies, including influential global accounting firms that have long profited from helping tax evasion companies in Ireland, such as Accenture and Ernst & Young, are said to be pushing the Irish government to hold on.
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But critics say tax-based industrial policy has had its day, warning the government against risking Ireland’s position with the US and the rest of Europe by fighting what is likely to be a losing battle.
“The government seems determined to show the world that Ireland is a rogue state,” a column in The Irish Times said this week. “It is incomprehensibly foolish to nail our colors to the mast of a sinking ship.”
A revision of the global tax order could cost Ireland £ 2bn to € 3bn a year in lost tax revenue, the Treasury estimates. Much of that money would go to other countries.
In total, the Irish government withdrew 12 billion. € in corporation tax last year up from 4 billion. Euro seven years ago. Over half of the admission came from the 10 largest multinational companies.
But the shift would not necessarily make Google, Pfizer or other global companies in Ireland leave – at least not immediately, not after investing time and money making the country their European base, analysts said.
After all, companies did not flee when an OECD deal last year closed tax evasion schemes with names like “Double Irish With a Dutch Sandwich”, which Apple and other technology giants used to cut their global tax bills through Ireland into more than one decade.
Continued investment has made Ireland’s economy one of the most resilient in Europe. Over 800 US companies are present and spend 20 billion. Euros ($ 23.6 billion) annually on investments, goods and services and payrolls, according to data from the American Chamber of Commerce. They employ an estimated 180,000 workers and indirectly support a further 144,000 jobs in Ireland’s economy.
The greatness can be seen on the streets of Dublin and beyond, where some of Europe’s most robust tech and pharmaceutical clusters have flourished over the years.
Construction companies are building more and more homes and office space to accommodate the expansion of multinational companies. In Silicon Docks, Google’s European headquarters alone span four buildings with a wellness center and swimming pool. Over the years, there has been a flow of cash to hotels, retailers, restaurants and pubs where well-employed employees use their income.
Critics say Ireland’s tax regime has led to a two-tier economy, with multinationals and their employees pulling forward while the domestic economy collapses. While the government has promised to address such issues, it is also concerned about the impact on future foreign investment if Ireland is no longer able to use low taxes as its main calling card.
“Ireland will be a less attractive place for multinational investment in the coming years,” said James Stewart, adjunct professor of finance at Trinity College Dublin. “You don’t get a sudden bang, but there’s a gradual shift away.”
The OECD insists that countries can still offer tax breaks and exemptions as long as they comply with the minimum tax levels. Ireland, for example, could continue to offer the so-called Knowledge Development Box, a special rate of 6.25 percent for revenue tied to corporate patents and other intellectual property.
Analysts say Ireland could sign the deal, bump the corporate tax rate to 15 percent and get more income without a huge risk of companies moving their European headquarters to the continent.
Hungary or Switzerland may have lower taxes, but lack Ireland’s broad – tech industry and a flexible English – speaking workforce. Ireland also has a relatively stable social compact between trade unions and companies.
Pharmaceutical giants like Novartis and Pfizer also have little incentive to relocate their research and manufacturing facilities. Cork in Southern Ireland is the main European base for 24 of the world’s 25 largest pharmaceutical companies.
Although much of their profits are made in large markets such as France and Germany – which would now be able to seize a larger share of the taxes they had paid in Ireland – analysts point to high business taxes and labor costs and complex regulatory regulation landscape as a deterrent.
Multinational companies have invested billions in Ireland precisely because successive Irish governments have provided tax certainty. The corporate tax is so sacred that during the European debt crisis in 2010, the Irish government refused to lower taxes to secure a rescue from the International Monetary Fund and instead chose to cut the minimum wage and the social safety net to save money.
But with most of the world now supporting a 15 percent global corporation tax, Ireland is likely to give up at the end of the day, provided it refrains from concessions from major countries to help maintain a competitive advantage.
“Ireland has benefited greatly from the tax advantage it has given multinationals,” said Ricardo Amaro, senior economist at Oxford Economics in Dublin. “In the future, they will have to come up with a strategy that relies on non-tax tools such as a stable regulatory environment and a skilled workforce to attract investment.”
“It has to be their plan B,” he added.