A cdentre for business

Ireland has always had a lot to offer in terms of attracting foreign investment – economic instability has just pushed us to increase our cost competitiveness and talent base, with positive results

IRELAND HAS BEEN very successful as a location for foreign direct investment (FDI) across all sectors. We host nine of the world’s 10 top software companies, eight of the world’s 10 top pharmaceutical companies and half of the world’s top 50 banks, with many using Ireland as one of their key international business centres.

Many of the larger multinational employers are household names, such as Apple, Intel, Boston Scientific, Pfizer, IBM, State Street, Citi and Google. We are also seeing increasing numbers of smaller enterprises investing at earlier stages in their lifecycle, looking to use Ireland as a base to establish their growing operations.

According to the IDA, at the end of 2009 there were 140,000 people directly employed in over 600 IDA-supported multinational corporations. Indirect employment was estimated at over 240,000. Multinationals operating in Ireland had €19 billion in direct expenditure in the Irish economy, paid €7 billion in payroll taxes and accounted for 50 per cent of Ireland’s corporate tax receipts.

The global recession has resulted in a collapse in FDI flows worldwide. The level of global FDI stood at $2 trillion (€1.55 trillion) in 2007, but deteriorated by 14 per cent in 2008 and a further 30 per cent in 2009.

Ireland was not immune to this downward pressure, with net employment by IDA-supported companies falling by 13,400, or 10 per cent, in 2009. Ongoing uncertainty in relation to tax proposals in key exporting locations like the US and UK also likely resulted in the deferral of some investment decisions by multinationals.

Despite this challenging economic environment, there has been a strong start to FDI into Ireland in 2010. There have been significant announcements by new investors, as well as existing companies announcing expanding operations in Ireland, including McAfee, Telefónica, Axa, LinkedIn, AOL, Zurich Group and EA Games.

New investment is increasingly focused on research and development (RD) and intellectual property (IP) management centres, with a number of positive tax developments stimulating increased interest in 2009. Almost 50 per cent of new projects related to RD. Ireland was ranked first for FDI jobs per capita in 2009, according to IBM Global Locations Trends.

There has arguably never been more demand for a stable low-tax location as multinationals face significant competitive and cost pressures, as well as increasing international tax and regulatory scrutiny. Ireland’s low-tax regime, EU membership and extensive double-tax treaty network, allied to our skilled labour force and renewed cost competitiveness, have helped us maintain our position as a key location for foreign investors.

Ireland is a tried and tested global centre for international business, and the most profitable foreign investment location for American multinationals.

Our tax regime is attractive for all sectors and proactive in adapting to the needs of international investors. This is evident from the range of positive measures and assurances contained in the 2009 report from the Commission on Taxation and enhancements to Ireland’s tax regime in the 2010 Finance Act. The recent Innovation Task Force also focused on the importance of maintaining a competitive low-tax regime and advocated certain improvements to the current regime (such as better relief for foreign withholding tax on royalties).

Ongoing scrutiny is critical in maintaining the international competitiveness of our tax regime. Specific measures such as strong improvements to the RD tax credit and IP tax regimes, combined with possible grant support from IDA for new research projects, underpin this success. Such measures have contributed to Ireland’s ranking first for its FDI and corporate tax regime.

These ongoing improvements send a message to global markets that Ireland remains an attractive and competitive investment location.

Ireland offers significant workforce advantages – and one side-effect of the recent downturn is that we have regained some of our competitiveness. The 2010 International Institute for Management Development (IMD) World Competitiveness Yearbook shows that Ireland ranks fourth globally for availability of skilled labour and openness to new ideas. We are also second highest in the EU for third-level education completion in the 25-34 age group.

Many multinationals with existing investments have been vocal in encouraging a renewed focus on education, so it is not surprising that investment in education was one of the top three factors identified in the PricewaterhouseCoopers (PwC) 2010 CEO Pulse Survey as critical in maintaining FDI in Ireland.

Ease of doing business should not be underestimated either. We are English-speaking eurozone members, bridge the time gap between east and west and have a common-law legal regime.

Ireland was ranked first in Europe for ease of paying taxes for the third year running by the PwC Paying Taxes 2010 Report. Our open business economy gives corporations an attractive environment within which to grow and innovate. This is evident as Ireland was placed first for internationalisation and openness out of 29 countries (Global Benchmark Report 2009), and the fifth freest economy in the world (2010 Index of Economic Freedom).

The local branches of many multinationals have needed to continuously reinvent themselves in order to sustain and grow their Irish footprint. Principles that originated in the more traditional manufacturing sector are now being applied in international services and other business models. There has been a shift in recent years from high-volume, low-value business to a focus on operational efficiency and excellence.

Irish management within global organisations has quickly adapted and sought opportunities to take the lead in particular sectors, or on specific product or service offerings. In many instances, Ireland has become an international centre of excellence, propelling Irish operations up the value chain, thereby making them more relevant for their global group.

We are seeing the evidence of this on the ground. The PwC 2010 CEO Pulse Survey shows that 40 per cent of chief executives of multinationals with Irish operations are considering making additional investments here, an increase of 25 per cent on last year’s result. This sends a strong message of confidence in Ireland.

However, the stiff competition in the global investment marketplace requires Ireland to constantly adapt and enhance our offering. Many of our historic advantages have weakened. For example, newer EU entrants are increasingly competitive on costs and tax. Some of the larger FDI exporting countries, such as the US and UK themselves, are also keen competitors in certain areas, particularly when financial incentives are factored in.

Remaining competitive on cost and tax is critical to remaining a key player in the global market. In the CEO Pulse Survey, the top three factors in maintaining Ireland’s attractiveness as a location for foreign investment were: improving cost competitiveness (51 per cent); a continued commitment to a stable and low tax regime (43 per cent); and enhancing investment in education and upskilling (30 per cent).

Of course, Ireland is not just competing for first-time investors; local management of existing corporate investors face a constant battle as they pitch to be the location of choice for new internationally mobile projects.

However, the efforts of business have been supported by the willingness of the Irish authorities to enhance the IP and RD tax credit regimes – in particular by allowing for “above-the-line” accounting treatment of the RD tax credit, which reduces the unit cost of research activities in Ireland, a key metric when competing for RD.

Interactions with US and other multinationals indicate that investor sentiment towards Ireland is increasingly positive, with concern over economic stability easing and being replaced by an awareness of our re-emerging cost competitiveness.

The CEO Pulse Survey also highlighted that 75 per cent of multinationals questioned said they were not considering reducing investment, nor were they closing existing operations here. It is notable that the number of respondents considering relocating abroad is down by almost 50 per cent on last year.

Irish authorities have been vocal in reinforcing their commitment to Ireland’s low tax rate and receptive to calls for improvements to RD and IP tax regimes, and innovation measures generally. Combined with our status as a key location for talent, openness and ease of doing business, as well as returning cost competitiveness, these represent the building blocks of our FDI reputation and should enable us to retain existing investments and grow our share of new investment.

Rules of attraction

Did you know that Ireland is . . .

1st for FDI jobs per capita

1st for FDI and corporate tax regime

2nd lowest total tax rate in the EU

3rd most globalised nation behind

Singapore and Hong Kong