By: Jack Taylor
Rolling green hills, Guinness beer, and American tech companies? Even though the latter may not be as intuitively obvious, all three of these are extremely abundant in the country of Ireland. For decades massive American technology companies have selected Ireland as the location of their European headquarters. This is due to the nation’s generous tax laws that include a lower corporate tax rate than most developed nations in Continental Europe. As a result, numerous American companies such as Google, Facebook, Amazon, and Apple have incorporated their European headquarters in the island nation. This scheme has been a major asset to Ireland and the Irish people as it has created thousands of jobs and increased demand for property and development. However, earlier this month, Ireland signed a global pledge to implement a minimum corporate tax rate of 15%. Although many are applauding the decision, some worry that it will make Ireland less attractive as a place for American tech companies to base their European headquarters.
Since IBM set up shop in 1956, US tech companies have flooded to Ireland to set up their European operations. Today, Ireland represents the number one destination of foreign direct investment from US tech companies. In fact, nine out of the top ten US technology companies are present and operating in Ireland. One of the main factors for this accomplishment is Ireland’s current corporate tax rate of 12.5%. This figure falls far below many other similarly situated European countries corporate tax rate. As a result, Ireland has become an attractive destination for multinational companies looking to save money on tax payments. However, this system is generally seen as beneficial to Ireland as well. American tech companies employ around 180,000 employees in the country and these jobs are generally high paying. Furthermore, even with the reduced tax rate, these tech companies still pay a substantial amount in tax to the Irish government.
In what seems like a major change in course and policy, the Irish government has announced that it has signed up to a global pledge to raise corporate tax rates to a minimum of 15%. This change is a part of a worldwide effort by 140 countries to implement a minimum corporate tax rate. The goal to prevent a “race to the bottom” system where countries compete against each other by lowering their corporate tax rate in an effort to attract corporations to do business in their respective countries. Satisfied with its current system, Ireland has historically been opposed to this effort and, until recently, has been one of the only holdouts.
Many in Ireland worry that a 15% corporate tax rate will decrease the attractiveness of the country to foreign companies, specifically American tech corporations. The fear revolves around the belief that the more standardized Ireland’s tax policy becomes in comparison to other European countries, the less incentive companies have to base their operations in Dublin or other Irish cities. If this fear becomes a reality, Ireland stands to lose thousands of jobs along with a major portion of its tax-based revenues. It is estimated that in 2019, just ten companies accounted for 56% of Ireland’s net corporate tax receipts, with Microsoft, Apple, and Pfizer (all American companies) providing around 30% of the nation’s corporate tax receipts. This fact highlights the concern that the tax hike could be counterproductive if even one major corporation decided to relocate as a result.
However, critics are likely overreacting as an exodus of American tech companies from Ireland is extremely unlikely. Even when the 15% tax rate is fully implemented, Ireland will still have one of the lowest corporate tax rates in Europe. For example, Germany imposes a 30% corporate tax rate, France has a 26.5% rate, and the United Kingdom taxes its corporate entities at 19%. Furthermore, the fact that Ireland is an English-speaking nation is extremely attractive to US based tech companies. The United Kingdom is the only other European country that truly offers this asset, but Brexit has created concerns about the ability to access and comply with the EU’s single market. Finally, the cost of relocating to a different country is a factor that will likely keep American tech companies in Ireland.
Ireland’s willingness to sign onto the 15% minimum corporate tax rate is an indication that nations across the world are becoming less worried with the idea that large multinational companies will relocate if corporate taxes go up. Fortunately for Ireland, the lack of other nations that charge a lower tax rate will likely keep American tech companies from leaving.
Student Bio: Jack Taylor is a second-year law student at Suffolk University Law School. He is a staffer on the Journal of High Technology Law. Jack received a Bachelor of Arts Degree in Business Management from Merrimack College.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
