As Irish hand-wringing continues over US treasury secretary Janet Yellen’s proposals for a global minimum tax rate and larger US domestic taxes on multinational income, I have a prediction.
We will not see scores of technology and pharma multinationals packing up their operations and moving back to the US or to some other jurisdiction on the basis of this proposed taxation change. That’s if it happens at all; after all, US Congress, which makes taxation policy, is split hard down partisan lines.
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 used a very low multinational corporate tax rate, currently 12.5 per cent, as part of its overall package to attract multinationals for decades.
Yellen also proposes a base 21 per cent tax on multinationals’ foreign profits.
Some are concerned that this would strip Ireland of its tax advantages. Rather, it would create a badly needed level playing field in terms of global taxation and enable countries to (rightly) compete on other advantages – in the case of Ireland, very clear strengths built up over many decades.
It’s time we removed the ultra-low taxation training wheels, because the economic bicycle is not going to fall over.
My opinion is put forward as a non-economist, of course, but rather as someone who has covered Ireland’s technology growth story for almost three decades. I’ve watched this transformation for a long time.
During that time there’s been plenty of politicking around taxes and multinationals. We’ve also had two whopping global economic downturns – the dotcom crash and the 2008 recession. Some have repeatedly cried that, at any moment, tech multinationals would whisk themselves off to some other location, leaving a destitute Irish economy.
Significant growth
And yet, here we are, having not just survived those crashes, but grown significantly in the wake of each one. Now we have one of the strongest global economies coming through and out of the pandemic, because tax returns from said multinationals remained firm, as did the income tax take (coming in significant part from their employees). Income tax take here dropped just 1 per cent in 2020. Corporate tax, mostly from Ireland’s multinational base, actually increased by 9 per cent.
That financial cushion will help ease the costs of supports for others in need, and keep the economic furnace going even as other countries take greater hits.
As I’ve said many times over the years, and will say again: Ireland’s attractiveness as a European base for these big US multinationals is built on far more than tax.
How do I count the ways?
There’s workforce availability, and its high skills and technical knowledge. There’s management and research expertise honed initially by returning immigrants who brought back freshly learned capabilities from abroad. There’s a similarity in work and social culture. There’s the easy flight access (which will hopefully be restored post pandemic), the Irish-American links, the attractiveness of Ireland as a workplace, a shared language and Ireland’s position as an English-speaking post-Brexit EU economy. Plus, the existing broad and deep tech and pharma ecosystem, anchored by significant past corporate investment.
All of this has combined over time to give an answer in parallel to what former Stanford University president John Hennessy once told me: when visiting international delegations would ask him how they could reproduce a Silicon Valley environment, he told them: "Well, start with about 100 years…".
Because it’s all those interlocking and often serendipitous pieces over time that create the kind of location that Ireland has grown to be.
That advantage won’t be reversed by a long overdue tax reshuffle in the US or globally. OECD discussions have been under way now some time for exactly such a global minimum tax rate, well in advance of Yellen’s support. And frankly, US companies need to be putting more tax income back into American coffers. It’s an ongoing scandal that they don’t.
Be prepared
As for Ireland: given that tighter global tax policies are practically a given now, we need to prepare for these changes with two badly needed domestic policy shifts.
Firstly, fund our suffering, financially stripped university system properly. Without an investment in young minds today, tomorrow’s jobs may well not be here. I’d even hazard that smart graduates are a more important investment location decision than tax rates. Critically, that investment needs to be across the board, and not just in Stem (science, technology, engineering and maths) programmes. Multinationals hire from across disciplines and, as they attempt to address some of their serious social and cultural inequities, they will need expertise beyond software development.
Secondly, we need greater investment and supports for indigenous companies. Ireland’s own tech companies have not received those same enticements, benefits and development perquisites. There are reasons why some stellar “Irish” tech companies are actually multinational companies with Irish founders but grown and based in the US.
These are the pieces that will maintain Ireland as a global tech centre well into … let’s say the next 100 years.
