Tax is not only reason tech firms come to Ireland

Ireland’s tax regime for corporates was back on the agenda this week, popping up regularly in post-budget discussion.

On the big-picture taxation side, the corporation tax rate for inward investment companies will remain at Ireland’s comparatively low 12.5 per cent.

In his Budget 2017 speech, Minister for Finance Michael Noonan even made the interesting observation that: "Nobody in Europe or anywhere else is asking for it to be changed."

The corporation tax rate always ends up being the whipping boy for those that wish more tax to be paid within Ireland by multinationals. At the opposite end of the scale, those with various annoyances at Ireland's ability to attract a diverse and growing range of multinationals (for the sake of tidiness, let's just consider the tech companies), view the 12.5 per cent rate as the sole meaningful driver of inward investment.

Exaggerations

Both views are wrong, however convenient it is to shape criticisms with such exaggerations.

In the first case – and in contrast to taxation policies from the 1980s and earlier – the current system has helped to attract and more importantly, retain a broad swathe of the most significant technology and internet companies. These, by and large, have expanded operations over the years to the point where many employ thousands.

Those employees all earn a salary, push discretionary income back into the economy in myriad ways, and pay taxes. In addition, they develop widely-demanded skills and experience that once could only be gained by leaving the country, often permanently.

We have long since reached a tipping point where we have so many diverse technology companies here, with an equally diverse infrastructure of suppliers of services and products to support them, that multinationals (and start-ups) come here for many reasons. The corporate tax rate forms only a part.

Hence another point: alarms voiced by some in the Opposition that only a small base of multinationals (many of them tech companies) represent the bulk of corporate tax earnings and thus pose a threat to the economy’s overall health if they were to leave, are misplaced.

Tumbleweeds blowing

First, most of these companies have significant investments here in infrastructure (to say nothing of skilled employees). Intel, for example, has highly complex, multibillion euro fabrication plants here. Yet, for two decades, some regularly warble that Intel could move at any moment, and as one memorable (and utterly wrong) critic once stated on air, leave tumbleweeds blowing through Leixlip.

Microsoft, Facebook, Google, Apple and others have, or are building, expensive data centres. Others have costly and complicated laboratory facilities. Most important of all, in Ireland, they can still, despite the ravages of the downturn and a higher high cost of living, attract and keep talent.

So, these are not companies limited to easily-movable call centre or manufacturing businesses. To continue to view such companies through outmoded 1980s goggles displays a worrying lack of understanding of one of the sectors that contributes most to the economy.

And, if tax was the top and bottom line attraction for any of these firms, other locations with much lower rates would be luring them away. But three decades on, across the tech sector, the Irish story has been one of expansion and growth, not departure. The UK’s decision to leave the EU offers yet another opportunity to attract multinationals seeking an English-speaking base that is actually within the single market and the euro.

That said: complicated tax dodges of the “double Irish” and “Dutch Sandwich” variety need to be eradicated. But that is the job of the international community and – here’s looking at you, US – the reform of the tax system in the home base country for these companies.

Underfunded universities

And without a doubt, the State must do better at helping native companies grow, with less incessant government focus on multinationals. For example, lowering capital gains relief in Budget 2017 for entrepreneurs to 10 per cent, matching the UK rate, seems a good move, but in the UK that applies to gains of up to £10 million. In Ireland, relief is limited to €1 million. That leaves the UK a more attractive base, Brexit or no Brexit, for an entrepreneur.

And the Government must not forget that the operative word in a healthy tech (and general business) environment is “ecosystem”. That means we desperately need meaningful investment in our beleaguered, woefully underfunded universities – in humanities as well as sciences and technology – to produce well-rounded, multiply-skilled employees. Universities also need to be able to offer research facilities of international calibre. We need to be funding more commercially-oriented R&D, too.

We also need an Ireland that is attractive to people – to employees. A solid transport system, not just for goods, but for people to get to their jobs. We need an adequate housing supply to keep rents and house prices competitive.

In short, the Government cannot be complacent about what attracts and keeps companies here. Big hint: it is not just the tax rates.