Friday, December 3

Will the increase in corporate tax in Ireland make tech companies leave Dublin? | Ireland

Ten years ago, Dublin was dubbed Silicon Valley’s “home away from home” with tech superstars like Mark Zuckerberg and Elon Musk lining up to take up office space, take advantage of local Irish hospitality and low taxes.

But while the decision by Google, Facebook, Yahoo, LinkedIn, eBay, Amazon, and more recently TikTok to locate their European headquarters in the Irish capital helped cement their reputation as one of the region’s leading tech hubs, they are now wondering yes they will. Stay.

Earlier this month, Ireland signed landmark reforms for a global minimum corporate tax rate of 15%, up from the current level of 12.5% ​​set by Dublin, in one of the biggest changes to the country’s tax system in decades.

Some analysts argued that the nation’s economic model could be seriously undermined, while Irish Finance Minister Paschal Donohoe said earlier this year that up to € 2 billion (£ 1.7 billion) a year in tax revenue could be lost by 2025. However, there is hope that the changes are not as existential as they appear.

“In the short to medium term, no, there will not be an exodus, the change from 12.5% ​​to 15% is not that significant,” said Seamus Coffey, an economist at University College Cork and former chairman of Irish Fiscal Advisory. Tip.

Ireland had played hard in the global tax talks that took place between 140 countries in the OECD in Paris, after almost a decade of failure among world leaders to agree on reforms that would equip the tax regime for the digital age.

Dublin refused to join a deal earlier this year, only releasing earlier this month in the 11th hour of negotiations after winning a key concession; previous plans calling for a minimum rate of “at least” 15% were dropped, giving the government more certainty. that would not increase further in the future.

However, the reality is that many large tech companies never paid Ireland’s overall 12.5% ​​rate in the first place.

A 2010 Bloomberg investigation showed how Google had lowered its overseas tax rate to just 2.4% using an aggressive tax avoidance scheme dubbed the “Double Irish Dutch Sandwich” to effectively distribute revenue earned in Europe abroad to places like Bermuda where the tax rate was zero. .

Those schemes were banned in 2015, giving companies a five-year compliance notice.

However, while these deals undoubtedly helped attract Google and Facebook to Ireland in the 1990s, they were simply the latest in a wave of more than 1,500 foreign companies, 800 of them American, lured by the low-tax ethic of development. industrial country. Agency since its foundation in 1949.

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

“The low tax rate started at zero in the 1960s and then went down to 10%,” Coffey said. “The goal was never to generate corporate tax revenue, but to use relatively low corporate taxes to attract companies to settle 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-owned TikTok established its Dublin headquarters in 2018 long after the writing was on the wall by the loophole of tax evasion.

“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 head of Twitter Ireland and partner at Frontline Ventures, a London and Dublin venture capital firm set up to help US tech companies expand in Europe.

Joe Biden and the OECD want to promote this idea of ​​competing for reasons other than taxes, considering that the reforms put an end to the “race to the bottom” between countries.

“When startups land in Europe, they are more concerned with hiring experienced people and acquiring clients. They also like places where it’s easy to do business, ”added McIntyre.

He said that for Ireland “there are cultural ties with the United States, the command of the English language is widespread and the labor law facilitates hiring and firing. Corporation tax is one of the top ten problems, but not one of the top five. “

If Google’s historic use of schemes to transfer taxable income abroad gave Ireland a reputation as a place where taxes could be avoided, the annual cash set aside by the Irish treasury paints a different picture.

The Irish Tax Advisory Council has estimated that some € 5 billion in annual corporate tax revenue relates to activities that may not have taken place in Ireland. However, the government’s budget watchdog warned that just 10 companies accounted for 56% of net corporate tax revenue in 2019, highlighting the risks of the OECD plan.

A high-ranking former Irish tax official estimates that around 30% of Ireland’s corporate tax comes from just three companies: Microsoft, then Apple, and Pfizer, which has been in the country since 1969.

“Companies like Microsoft will be years ahead of the curve. They don’t pay their tax advisers more than $ 1 million just to sit on their backs. They are very smart. These companies will have their plans, strategies in place for years, ”said the source.

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One danger for Ireland is that corporate tax reforms could go further. In this summer’s OECD talks, sources said France and Germany were pushing for a higher global minimum tax rate; with the subtext of forging closer economic integration by limiting tax competition in the 27-member bloc.

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

Across the 37 members of the OECD, the average overall corporate tax rate is around 23%.

Coffey said Irish corporate tax revenue has tripled in the past seven years, helped by a huge injection of American businesses. “But if they can rise in such an inexplicable way, then there is also the possibility that they will fall in an equally inexplicable way.”

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