Ireland’s days as a tax haven may be ending, but not without a fight

On the crowded waterfront quay of Dublin’s Silicon Docks, Google’s European headquarters dominates the skyline. Facebook and Twitter are neighbors. The European bases of Apple, Pfizer and hundreds of American multinationals are established all over the country, symbols of the commerce produced by the corporate taxes deemed low in Ireland.

But the model that fueled the so-called Celtic Tiger economy for decades is in jeopardy, as a coalition of 130 countries works to overhaul a global tax system Ireland depends on to attract seeking businesses. reduce the taxes they pay.

As ministers from the Group of 20 major economies meet in Venice on Friday for a two-day summit to discuss the details of a landmark deal that would limit tax evasion by multinational companies, Ireland is preparing to tackle it. which poses a major threat to their livelihood.

“Ireland is a tax haven operating in Europe, so it makes sense that Ireland resists it as hard as it can,” said Alex Cobham, chief executive of the Tax Justice Network, an advocacy group that fight against tax evasion. “The Celtic Tiger is something to be proud of, and if the pattern breaks, they have to look like they’re defending it as much as they can.”

The battle lines drawn by the Irish government have cast a global spotlight on the nation of five million people – and stirred controversy among the Irish themselves.

At stake is Ireland’s low official corporate tax rate of 12.5% ​​and a tax regime that helps global companies based there avoid paying taxes to other countries where they make profits, a setup that has put billions of euros into Ireland’s tax coffers and created hundreds of thousands. jobs.

Ireland was one of nine countries that did not adhere last week to the broad framework, overseen by the Organization for Economic Co-operation and Development, which could undermine those benefits. The deal would impose a new global minimum corporate tax rate of 15% and force tech and retail giants to pay taxes where their goods or services are sold, rather than where they are sold. company has its head office. The details of the deal are expected to be finalized in October, and then each country’s government will have to adopt it.

While Ireland has said it supports many aspects of the proposal, it is joining a group of low-tax countries in pushing at the G20 meeting for terms that would allow small countries to make up for the loss. of any tax benefit.

Ireland will seek a “comprehensive, lasting and fair deal,” Finance Minister Paschal Donohoe said in a statement last week.

Almost all the big companies are trying to minimize their taxes. But tax rates have become a contentious issue for governments around the world as public finances deteriorate after more than a year of fighting the pandemic. A minimum tax of 15% would generate $ 150 billion in additional tax revenue each year, the OECD said.

The stakes are especially high for Ireland, which is in the company of notorious tax havens like Barbados as it wrangles with the United States and its main allies in Europe.

Some might say the outlook is not good – Ireland risks giving the impression that it wants to deprive other countries of their fair share of tax revenues – and the Dublin government has been reluctant in its statements on the matter . The Ministry of Finance refused interview requests and did not respond to written questions. Likewise, multinational companies that have profited from the reduced tax regime have been blatantly silent, refusing requests to discuss the issue.

Behind the scenes, pro-business lobbies, including influential global accounting firms that have long profited from helping Irish multinationals avoid tax, like Accenture and Ernst & Young, are reportedly lobbying the Irish government to he is holding on.

But critics say tax-driven industrial policy has had its day and warned the government of the risk of Ireland’s position with the United States and the rest of Europe in waging a risky battle. to be lost in advance.

“The government seems determined to show the world that Ireland is a rogue state,” an Irish Times column said this week. “It’s incredibly stupid to nail our colors to the mast of a sinking ship.”

An overhaul of the global tax order could cost Ireland 2 to 3 billion euros per year in lost tax revenue, estimates the Ministry of Finance. Much of that money would go to other countries.

In total, the Irish government levied € 12 billion in corporate taxes last year, up from € 4 billion seven years ago. More than half of the catch came from the 10 largest multinationals.

But the change wouldn’t necessarily prompt Google, Pfizer or other global companies in Ireland to leave – at least not immediately, not after investing time and money to make the country their European base, analysts said. .

After all, companies weren’t on the run when an OECD deal ended tax evasion programs last year with names like “Double Irish With a Dutch Sandwich,” which Apple and other tech giants have used it to cut their global tax bill via Ireland for over a decade.

Continued investment has made the Irish economy one of the most resilient in Europe. More than 800 American companies are present, spending 20 billion euros ($ 23.6 billion) per year on investments, goods and services and wages, according to data from the American Chamber of Commerce. They employ around 180,000 workers and indirectly support another 144,000 jobs in the Irish economy.

The generosity is visible in 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 offices to accommodate the expansion of multinationals. At Silicon Docks, Google’s European headquarters alone spans four buildings, including a wellness center and swimming pool. Over the years, money has flowed into hotels, retailers, restaurants and pubs where well-paid employees spend their income.

Critics say Ireland’s tax system has led to a two-tier economy in which multinationals and their employees advance while the national economy painfully advances. While the government is committed to addressing these issues, it is also concerned about the impact on future foreign investment if Ireland is no longer able to use low taxes as its primary calling card.

“Ireland will become a less attractive place for multinational investment in the years to come,” said James Stewart, assistant professor of finance at Trinity College Dublin. “You won’t get a sudden detonation, but there will be a gradual lag.”

The OECD insists that countries could still offer tax exemptions and exemptions as long as they met minimum corporate tax levels. Ireland could, for example, continue to offer what is known as the Knowledge Development Box, a special rate of 6.25% for income related to company patents and other intellectual property rights.

Analysts say Ireland could sign the deal, cut its corporate tax rate to 15% and boost revenues without a huge risk of companies moving their European headquarters to the continent.

Hungary or Switzerland may have lower taxes, but lack Ireland’s vast tech industry and flexible English-speaking workforce. Ireland also has a relatively stable social pact between unions and companies.

Pharmaceutical giants like Novartis and Pfizer also have little incentive to move their research and production facilities. Cork in southern Ireland is the main European base for 24 of the world’s 25 largest pharmaceutical companies.

Even though a large chunk of their profit is made in large markets like France and Germany – which would now be able to recoup more of the taxes they paid in Ireland – analysts point to business taxes and business taxes. high labor costs, as well as complex regulations. landscape as a deterrent to travel.

Multinationals have invested billions in Ireland precisely because successive Irish governments have provided fiscal security. Corporate tax is so sacred that during the European debt crisis of 2010, the Irish government refused to lower taxes to get a bailout from the International Monetary Fund, choosing instead to lower the minimum wage and the net social security to save austerity.

But with most countries around the world now backing a 15% global corporation tax, Ireland is expected to give in at the end of the day, provided it snatches concessions from larger countries to help maintain an advantage. competitive.

“Ireland has benefited a lot from the tax advantage it has provided to multinationals,” said Ricardo Amaro, senior economist at Oxford Economics in Dublin. “Going forward, they will need to develop a strategy that relies on non-tax tools such as a stable regulatory environment and a skilled workforce to attract investment.”

“This has to be their plan B,” he added.