FDI to Republic takes steep dive under Trump tax reforms

Large-scale repatriations by US multinationals following tax reforms under President Donald Trump meant total foreign direct investment (FDI) in the Republic fell sharply in the first six months of 2018.

New figures show that FDI in Ireland went into reverse in the first half of the year as many US companies moved to repatriate accumulated foreign earnings from their affiliates abroad.

According to statistics from the United Nations Conference on Trade and Development (Unctad), total FDI inflows to the State declined by $81 billion (€71 billion). With $2 billion of that accounted for by new investments, the figure for capital outflows is $79 billion, from a plus reading of $6 billion in the first half of 2017, to a negative $73 billion for the same six months of this year.

The Unctad figures provide the first real evidence of multinationals repatriating foreign earnings from the Republic. However, there is disagreement regarding the usefulness of comparing intra-company fund movements with higher impact FDI, such as the establishment of new operations or the purchase of new assets.

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Special rate

The outflow of capital back to parent operations comes after the enactment of the US tax reform package which gave multinationals a one-time special rate of 15.5 per cent on the repatriation of profits earned abroad.

Astrit Sulstarova, who leads Unctad's investment trends and data section, told The Irish Times that there was no doubt the slump in FDI was as a result of US companies sending money back home.

“The main reason for the decline is due to repatriation of profit by the US multinationals. This is reflected also in the components of FDI inflows to Ireland,” said Mr Sulstarova.

“In addition, there is also negative intra-company loans – ie foreign affiliates in Ireland [that] either were paying back their loans to their parents or providing new loans to them,” he added.

IDA Ireland, which attracts FDI to Ireland, sought to downplay the significance of the data.

‘Real investments’

“IDA Ireland is focused on real investments and real jobs, which have a positive impact on the growth of the Irish economy. The key indicator of FDI flows in Ireland are highlighted in our end-of-year results which for 2017 indicates that the high level of investments won remained stable in 2017, with 237 new investments secured by IDA during the year,” a spokeswoman said.

“The number of new name investments increased to 111 from 99 in the previous year,” the spokeswoman added.

The Republic was not the only country impacted by the newly enacted reforms, which also resulted in the US corporate tax rate being cut from 35 per cent to 21 per cent. According to Unctad, global FDI fell by 41 per cent in the first half to an estimated $470 billion from $794 billion a year earlier, with inflows in developed countries down 69 per cent to an estimated $135 billion.