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

Google’s European headquarters stand high above the skyline, on the crowded waterfront of Dublin’s Silicon Docs neighborhood. Facebook and Twitter are neighbors. The European bases of Apple, Pfizer and hundreds of American multinationals have been transplanted across the country, symbolizing the commerce produced by Ireland’s famously low corporate taxes.

But the model that has fueled the so-called Celtic Tiger economy for decades is in jeopardy, as a coalition of 130 nations works to overhaul a global tax system that requires Ireland to reduce the taxes it pays. Depends on enticing businesses to do.

As ministers from the Group of 20 major economies gather in Venice on Friday for a two-day summit to hash out details for a historical agreement Ireland is struggling to battle a major threat to its livelihoods, which will limit tax evasion by multinational firms.

“Ireland is very much a tax haven in Europe, so it makes sense that Ireland would oppose it as much as possible,” said Alex Cobham, chief executive officer of the Tax Justice Network, an advocacy group that fights tax avoidance. “Celtic Tiger is something to be proud of, and if the model is breaking down they need to see that they are defending it as much as possible.”

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

At stake are Ireland’s low official corporate tax rate of 12.5 percent and a tax regime that helps global companies avoid paying taxes to other countries where they make profits, a setup that has added to Ireland’s tax coffers. Billions of euros have been poured in and hundreds of thousands of jobs created.

Ireland was one of only nine countries that did not sign last week to the comprehensive framework, overseen Organization for Economic Cooperation and Development, which could undermine those benefits. The agreement will implement a new 15 percent global minimum corporate tax rate And force technology and retail giants to pay taxes where their goods or services were sold, not where the company was headquartered. The details of the agreement are expected to be completed in October, and then each country’s government will be required to adopt it.

While Ireland has said it supports many aspects of the proposal, it is joining a group of low-tax countries to push for the terms at the G20 meeting that would give smaller countries any tax benefits. allow for the loss of.

Ireland will seek a “comprehensive, sustainable and equitable settlement”, the finance minister, Pascal Donohoe, said in a Statement Last week.

Almost every major corporation tries to reduce its taxes. But tax rates have become a contentious issue for the world’s governments as public finances continue to deteriorate after battling the pandemic for more than a year. The OECD stated that a 15 percent minimum tax would generate $150 billion in additional tax revenue each year.

The stakes are particularly high for Ireland, which is in the company of notorious tax havens such as Barbados as it fences with its major allies in the United States and Europe.

Some might say the optics are not good – Ireland looks like it wants to deprive other countries of its fair share of tax revenue – and the government in Dublin is grumbling in its statements on the issue. The finance ministry declined interview requests and did not respond to written questions. Similarly, multinationals that profit from the low-tax regime have been blatantly silent, denying requests to discuss the issue.

Behind the scenes, pro-business lobbies, including influential global accounting firms that have long benefited from the business of helping multinationals avoid tax in Ireland, such as Accenture and Ernst & Young, over the Irish government pressuring them to maintain their base.

But critics say tax-driven industrial policy has had its day, and warn the government against risking Ireland to fight what is likely to be a losing battle with the United States and the rest of Europe. has given.

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

The finance ministry estimates Ireland could lose between 2 billion and 3 billion euros annually from changes in the global tax order. Most of that money will go to other countries.

Overall, the Irish government collected €12 billion in corporate taxes last year, up from €4 billion seven years ago. More than half of the tech came from the 10 largest multinationals.

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

After all, when the OECD agreement kicked off tax avoidance schemes last year, companies didn’t run away. “Double Irish with a Dutch Sandwich,” Which Apple and other tech giants used to cut their global tax bills through Ireland for more than a decade.

Continuing investment has made Ireland’s economy one of the most resilient in Europe. According to the American Chamber of Commerce, more than 800 American companies are spending €20 billion ($23.6 billion) annually on investment, goods and services, and payroll. data. They employ an estimated 180,000 workers and indirectly support another 144,000 jobs in Ireland’s economy.

The vastness can be seen on the streets of Dublin and beyond, where some of Europe’s strongest tech and pharmaceutical clusters have flourished over the years.

Construction companies build more housing and office space to accommodate the expansion of multinationals. In Silicon Docs, Google’s European Headquarters Spread over four buildings alone, there is a wellness center and a swimming pool. Over the years, cash has flowed into hotels, retailers, restaurants and pubs, where well-salaried workers spend their income.

Critics say Ireland’s tax system has given rise to a two-speed economy in which multinationals and their workers thrive while the domestic economy thrives. While the government has vowed to address such issues, it is also concerned about the impact on future foreign investment should Ireland no longer be able to use low taxes as its main calling card.

“Ireland will become a less attractive place for multinational investment in future years,” said James Stewart, an assistant professor of finance at Trinity College in Dublin. “You won’t get a sudden bang, but it will gradually go away.”

The OECD insists that countries can offer tax holidays and exemptions as long as they comply with minimum corporate tax levels. For example, Ireland could continue to offer the so-called Knowledge Development Box, a special 6.25 percent rate for revenues associated with companies’ patents and other intellectual property.

Analysts say Ireland could sign the deal, raise its corporate tax rate to 15 percent and generate more income without the great risk that companies move their European headquarters to the continent.

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

Pharmaceutical giants such as Novartis, Pfizer and Abbott 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 if most of their gains were in large markets such as France and Germany – which would now be able to grab a substantial portion of the taxes they are paying in Ireland – analysts could see higher business taxes and labor costs, and a complicated regulatory regime. Pointing to the scenario as an incentive to move.

Multinationals have invested billions in Ireland precisely because successive Irish governments have provided tax certainty. The corporate tax is so sacred that during Europe’s debt crisis in 2010, the Irish government refusal to reduce tax To secure a bailout from the International Monetary Fund, rather than cut the minimum wage and the social safety net to save frugally.

But with much of the world now supporting the 15 percent global corporate tax Ireland is likely to rely on at the end of the day, provided it secures concessions from larger countries to help it maintain a competitive edge.

“Ireland has benefited greatly from the tax benefits provided to multinationals,” said Ricardo Amaro, a senior economist at Oxford Economics in Dublin. “Going forward, they will have to come up with a strategy that relies on non-tax tools like a stable regulatory environment and skilled workforce to lure investments.”

“That should be their plan B,” he said.

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