I have a forecast as Irish crafting will continue on US Treasury Secretary Janet Yellen’s proposals for a global minimum tax rate and higher US domestic taxes on multinational incomes.
We will not see numerous multinational tech and pharmaceutical companies pack up their businesses and return to the US or any other jurisdiction based on this proposed tax change. That’s if it happens at all; After all, the US Congress, which regulates tax policy, is very partisan.
Yellen has put forward the idea of a global minimum tax rate to counter a low tax race to the bottom.
Step forward Ireland, which has been using a very low multinational corporate tax rate, currently 12.5 percent, for decades as part of its overall package to attract multinational corporations.
Yellen is also proposing a property tax of 21 percent on the foreign profits of multinational corporations.
Some fear that doing so would deprive Ireland of its tax advantages. Rather, it would create a much-needed level playing field on global taxation and allow countries to (rightly) compete for other benefits – in the case of Ireland, very clear strengths built over many decades.
It’s time we removed the ultra-low tax training bikes because the economical bike won’t fall over.
My opinion is being voiced as a non-economist, of course, but as someone who has been reporting on Ireland’s technology growth story for nearly three decades. I’ve been watching this transformation for a long time.
There was a lot of talk about taxes and multinational corporations during this period. We also had two major global economic downturns – the dot-com crash and the 2008 recession. Some have cried repeatedly that any moment multinational tech companies would move elsewhere and leave a penniless Irish economy.
And yet we are here after not only surviving these crashes, but having grown considerably with each one. Now we have one of the strongest global economies coming through the pandemic and out of the pandemic because these multinational corporations’ tax returns got stuck, as did income tax (which in a significant part comes from their employees). Income tax was only reduced by 1 percent in 2020. Corporate tax, mainly from Ireland’s multinational base, actually rose 9 percent.
This financial cushion will help lower the cost of providing assistance to others in need and keep the economic furnace going, even if other countries get bigger hits.
As I have said and will say many times over the years, Ireland’s appeal as a European base for these large US multinationals is based on much more than just taxes.
How do I count the ways?
There is labor availability as well as high skills and technical knowledge. There are management and research skills that were initially enhanced by the return of immigrants who brought back newly learned skills from abroad. There is a similarity in work and social culture. There’s easy air access (hopefully restored after the pandemic), Irish-American connections, Ireland’s appeal as a place to work, a common language and Ireland’s position as an English-speaking EU economy post-Brexit. In addition, the existing broad and profound technology and pharmaceutical ecosystem, which is anchored in the past through significant corporate investments.
All of this has come together over time to provide an answer parallel to what former Stanford University President John Hennessy once told me: When visiting international delegations, he asked him how they were running a Silicon Valley Environment and told them, “Well, start about 100 years …”.
Because it’s all of these interlocking and often random pieces over time that create the place Ireland has grown to be.
This advantage will not be reversed by a long overdue tax reshuffle in the USA or worldwide. The OECD’s talks about just such a global minimum tax rate have been going on for some time, long before Yellen endorsed it. And frankly, US companies need to put more tax revenue into American coffers. It’s an ongoing scandal that they don’t have.
As for Ireland, given that tighter global taxation is practically a given right now, we need to prepare for these changes with two much-needed domestic changes.
First, fund our ailing, financially troubled university system properly. Without investing in today’s young minds, tomorrow’s jobs may not be here. I would even risk smart graduates being a more important investment location decision than tax rates. It is critical that this investment be made across the board, and not just in core programs (science, technology, engineering, and math). Multinational companies are hiring from a variety of disciplines and, in order to address some of their serious social and cultural inequalities, require expertise that extends beyond software development.
Second, we need greater investment and support for local businesses. Ireland’s own technology companies have not received the same incentives, benefits and development opportunities. There are reasons some great “Irish” tech companies are actually multinational corporations with Irish founders, but they have grown and are based in the US.
These are the parts that will keep Ireland well into the next 100 years as a global technology hub.