ANALYSIS:SHIRE PHARMACEUTICALS' decision to become a Republic of Ireland tax resident will not create any new jobs here, but it vindicates a measure introduced by Charlie McCreevy before he left for Europe.

McCreevy created a new regime for holding companies and head offices established in the Republic by foreign or multinational-owned businesses that featured three tax incentives.

The first was the 12.5 per cent rate on corporate profits, among the lowest in the EU. The second was zero capital gains tax on profits from the sale of subsidiaries. The third was a concession on dividends paid to the Irish holding company, which meant in some cases they paid no tax here on such payments, if they had already been taxed elsewhere, or else they were subject to the 12.5 per cent rate.

Shire is a high-end pharmaceutical developer and manufacturer, which had sales of $1.8 billion in 2006, the last full year for which figures are available. Its portfolio includes products designed to treat stomach and kidney problems. It is also focused on genetic therapies and attention deficit and hyper-activity disorder.

It is quoted on the London Stock Exchange and trades American depositary shares (ADS) on New York's Nasdaq market. Sales generated in Britain fell to 7.3 per cent of the total last year from 10 per cent in 2006. The group said yesterday that it is restructuring to take account of the growing international nature of its business.

This re-organisation will involve incorporating in Jersey and establishing a holding company in the Republic, which will be its tax domicile. According to a spokeswoman, the move will have no real impact on its business in the Republic, where it employs 55 people in Citywest Business Park, beyond having its board meetings here.

In fact, the company is not even sure that the initial tax benefits will be huge, but instead says that the Republic was chosen because it was most suitable from a long-term point of view. It's more or less impossible to establish just what the impact will be. In the first nine months of last year, Shire paid a total of $107 million in tax, an effective rate of 22 per cent, according to its own figures.

The company is based and taxed in the UK, where the corporate rate was 30 per cent. Companies use allowances, credits, deferrals and other instruments to manage their liabilities. This means that the effective rate at which they pay tax often differs from the headline rate that applies in whatever jurisdiction they are based. The most obvious and immediate benefit for the Republic is that a company that was not previously based here for tax purposes will now begin contributing to our exchequer.

But this is not the only reason that the measure was put in place. There should, in theory at least, be further spin-offs down the line when companies base themselves here for tax purposes.

They will presumably have to hire Irish expertise and advisers to facilitate such a move. Alongside this, if multinationals manage one central aspect of their business here, it opens the door to them basing other activities here as well. These could range from risk management, treasury, sales, marketing support, research and development and so on.

According to one tax adviser, the provisions were designed as an incentive to multinationals to set up a whole set of activities here, and to give agencies like IDA Ireland more leverage when it comes to selling the Republic. The same theory continues that, as manufacturing is shifted to lower-cost economies, incentives like the one that has drawn Shire here will help ensure that the profits, and activities associated with managing them, flow back to the Republic regardless of where production goes.

The only potential drawback to this is the reaction of other nations, such as Britain, who are seeing their taxpayers heading for the Republic. Ironically, this is something that could be scrutinised in Brussels, where Charlie McCreevy now plies his trade as EU Commissioner for Internal Trade.