In the global tax game, Ireland is a mere pawn, powerless in the face of big corporations and their aggressive tax avoidance schemes.
It’s no secret that these firms inhabit a parallel universe when it comes to tax, paying rates that would make a cowboy builder blush. But if we want their business – and they already employ 130,000 people here (7.2 per cent of the workforce) – we’ve no option but to turn a blind eye, as ugly as that sounds.
Equally, any unilateral move to phase out some of the more contentious aspects of our code, something the Department of Finance is considering, would be risky, if not foolhardy.
*When it comes to US companies and the ongoing debate on tax, these are all issues in the public mind. This is what American Chamber of Commerce Ireland chief executive Mark Redmond has to say:
"Ireland has for a very long time identified a competitive corporate tax regime as being really important to attract foreign direct investment [FDI]. That didn't happen today or yesterday. That's been in position since the 1950s and why?. . . because we've a small island on the edge of western Europe and our only natural resource is grass, so we had to have some way to attract inward investment.
“Why we have these competitive tax environments is because governments have chosen to put them in place, Ireland being just one example.”
He points to George Osborne’s crusade to transform the UK into Europe’s premier low-tax economy as proof that other countries are following Ireland’s lead.
However, isn’t it inherently unfair that SMEs – cumulatively the State’s largest employer – are hounded by Revenue to file Vat returns on time while the big fish show a casual contempt for the tax code?
Redmond counters with a list of what US firms have done for Ireland, not just in terms of employment but in the high-tech, entrepreneurial culture they have nurtured. He also notes that US companies contribute €3-€5 billion annually to the exchequer.
Sometimes these things “get lost in the overall debate”, he says.
“There’s not a family in this country that hasn’t benefitted directly or indirectly from US investment. I think most Irish people get that because at the end of the day it’s down to jobs.”
I put it to him that no one would dispute the need for a competitive tax regime, but the overriding message from big multinationals is that tax is for the little people. Redmond disputes this assertion.
“The effective corporation tax rate, or the rate after various adjustments, is around 12 per cent, so it’s very close to the headline rate . . . that’s a really strong indicator of the transparency of our system.”
He also says that, in terms of the corporation tax yield as a percentage of gross domestic product, Ireland is slightly ahead of the European average, roughly the same percentage as, say, Germany or France.
Nonetheless, Redmond’s appointment as head of the chamber, at a time of such international focus on tax avoidance, speaks volumes.
Prior to this job, he was head of the Irish Tax Institute, and knows, better than most, the difference between a "Dutch sandwich" and a "double Irish".
In a recent submission to the Department of Finance, the chamber warned that any unilateral phasing out of anomalies in the tax system could put the State at a competitive disadvantage. A similar warning was made in a submission by the Washington-based Tax Executives Institute, which advises US multinationals on tax.
The department is considering addressing some of the more controversial aspects of the State’s tax code in the forthcoming Budget in advance of recommendations from the Organisation for Economic Co-operation and Development (OECD).
The OECD has been tasked by the G20 to examine ways of curtailing base erosion and profit-shifting schemes (Beps), which, without getting too technical, is what multinationals use to reduce their tax liabilities.
Tax havens
First on the chopping block might be the "double Irish", successfully pioneered by Apple through its subsidiary in Cork, which exploits differences in the transfer pricing rules between the US and Irish tax codes.
Many US parent companies, Google being just one example, have licensed a portion of their intellectual property to holding companies or subsidiaries here.
However, not content to avail of the relatively low corporation tax here, their royalty income is routed on to genuine tax havens in the Caribbean.
These complex structures will be difficult to tear down even with the growing clamour for a more equitable and transparent global tax system. Redmond believes the political will behind reforming the system is now too strong to resist.
“To be quite honest, the international protocols on tax are out of date.”
The AmCham offices are located in a refurbished Georgian property on Wilton Place, Dublin 2, just around the corner from the offices of IDA Ireland and employers' group Ibec.
Redmond, a Trinity graduate who worked for several years as “director of learning and development” with PricewaterhouseCoopers, took over as chief executive of the chamber in March.
He believes Ireland’s burgeoning economic recovery is dependent on keeping the US FDI tap flowing.
Between 2008 and 2012, when Ireland went into economic meltdown, he says US investment in the country exceeded that of the previous 60 years.
“So while a lot of others might have been losing confidence in the Irish economy, the US multinational sector didn’t, in fact the very opposite. That has been a really important mainstay for the Irish economy and society.”
The view among its 400 or so members is that Ireland is getting it right – politically and economically, he says.
“But if you ask me what’s the key ingredient that’s most acknowledged and respected by the parent companies back in the US, it’s the ‘can-do attitude’ of the Irish workforce.
“The basic reason why we attract jobs is because US multinational operations in Ireland have a reputation for delivering on their mandate.”
Redmond says he’s most impressed by incredible level of innovation in products and services that US multinationals are creating here.
One third of all contact lenses used throughout the world are manufactured here, he says, as are four out of five medical stents and 50 per cent of all hospital ventilators.
Education system
Intel’s new Quark microchip, which will carry the label “Designed in Ireland”, is a reflection of the State’s new-found reputation for innovation, he adds.
But has the economic collapse not brought home a few hard truths , most notably that our education system may not be punching above its weight, contrary to repeated assertions during the boom? Recent OECD Pisa reports suggest Irish 15-year-olds are only average or even below average in a number of key areas such as maths, literacy and problem solving.
Redmond admits US multinationals highlight problem solving as a key skill that is often lacking in new recruits, not just here but in other countries. He says the chamber has been supportive of Government efforts to encourage students to engage more in, what he calls, the Stem subjects – science, engineering and maths.
In conjunction with the Higher Education Authority, the chamber plans to launch a post-graduate programme in professional skills in the autumn. The intention, Redmond says, is to give graduates a post-degree diploma which will make them more "work ready".
How does he counter claims that the focus of the chamber is too much on the big US companies at the expense of the smaller ones?
"The US multinational community here is a broad church, from huge, long-established employers like Abbott and IBM to smaller emerging companies like online accommodation rental service company Airbnb, often with very different needs."
He believes the chamber, along with the IDA, has become more savvy at identifying the needs of smaller operations. Attracting FDI here is not just about tax and skills, he says, it’s about creating a good workplace environment.
“For example, many people locating here often complain about the cumbersome process of applying for a driving licence or the challenge of gaining access to suitable schools for their children.”
In terms of high-tech start-ups, there has been a noticeable “clustering effect” in Dublin’s digital docklands, he says, with firms such as AdRoll, Airbnb, Yelp all locating operations there.
He mentions he was at an event recently where Marcus Segal, one of the founding members of games company Zynga, said: "If you're in my sector, you simply cannot afford not to come to Dublin and set up operations here because so many other players are here".
Redmond says: “Government gets this and understands the need to have a good working and living environment in the digital docklands.”
However, he believes Ireland’s relatively high rate of income tax puts it way out of kilter with other states, and makes it difficult for firms to bring in high-quality staff.
The chamber would like Minister for Finance Michael Noonan to, at the very least, signal in the budget that he intends to bring the "effective" top band below 50 per cent in the near future.
The chamber is also closely monitoring the EU’s decision to review patent box regimes – under which certain member states offer tax breaks for intellectual property – something that many of the chamber’s members would benefit from, if one was put in place here.
The Government has adopted a "wait-and-see approach" as the European Commission decides whether these schemes contravene state aid rules.
Overall, Redmond insists the future for Ireland is bright. “The confidence of US job creators here is now as strong as it ever was.”
He is lucky to be stepping into the role just as the economy is shifting away from its recessionary co-ordinates. However, the hullabaloo over multinational tax, and in particular Ireland's role in it, is likely to keep him busy for some time to come.
*This article was amended on September 9th, 2014
