Harmonisation on corporate tax could turn US firms off Ireland

Companies have plenty of locations to choose from and it is up to the Government to maintain an economy that will continue to attract them, writes Joanne Richardson

Ireland's low corporation tax rate is rightly regarded as a crucial ingredient in the State's economic development. The establishment of the world's first duty-free zone at Shannon in 1959 was innovative and its success in attracting overseas companies marked Ireland's first steps towards an internationalised economy.

Our economic success has been based to a large degree on our ability to attract and keep this inward investment. American companies in particular were among the first to locate in Shannon and there continues to be great loyalty and commitment to Ireland within the US business community.

Up to 570 companies employ more than 90,000 people in Ireland. Annual exports by US companies exceed €26 billion and the United States of America is by far the largest investor in Ireland, representing almost 65 per cent of foreign direct investment.

In particular, US investment has played a major role in developing the regions. In Cork, more than 75 US companies employ more than 15,000 people.

In Galway and Mayo, there are 44 US companies employing more than 11,000. Moving to the northwest, there are 20 US companies including big players such as Abbot and MBNA.

Collectively, US companies are by far the largest employers in the regions.

US companies are also responsible for thousands of jobs which are created through indirect employment. They provide important funding to third-level institutions and research initiatives and have also been the incubators for some of Ireland's most successful entrepreneurs, spinning off successful indigenous Irish companies, particularly in the software sector.

Research indicates that US companies are drawn to Ireland for three main reasons:

the attractive corporation tax regime;

access to European markets;

the availability of graduates and a generally highly educated workforce.

However, in recent months, members of the American Chamber of Commerce Ireland have been highlighting their concern about Ireland's potential loss of competitiveness as a location for US investment.

We are no longer a low wage economy. We have seen a fall-off in the number of students pursuing science and engineering qualifications and our unique "gateway to Europe" status is eroded with the arrival into the European Union of countries such as Estonia, which already uses low corporate tax rates as an incentive for foreign investors. Spiralling direct and indirect costs are adding to the problems.

In all, our meetings with members during the Nice Treaty campaign, uncertainty regarding the future of Ireland's attractive corporation tax regime was highlighted as being of most concern.

The move by France and Germany to table a proposal on the harmonisation of corporate tax rates across the EU poses the biggest threat to Ireland's ability to attract overseas investment so critical to our economic success. The value of US Foreign Direct Investment in Ireland is estimated to be more than $33 billion (€33.09 billion). This must be protected at all costs.

Any move to harmonise taxes at the expense of our attractive tax regime would be massively detrimental to Ireland and must be resisted.

Decisions to invest or expand operations in Ireland are long term. "Parent America" needs clarity that the environment in which it is investing will not change five or 10 years down the line.

US companies have many choices of locations. Not only are we competing in an enlarged European Union market, including all of the additional competition from Eastern Europe, but we are competing with markets such as India, China and Mexico.

US companies in Ireland compete internally to sustain the current level of investment as well as endeavouring to win additional higher value projects.

Last week in a meeting with the American Chamber, the Tánaiste, Ms Harney, restated the Government's absolute commitment to the introduction of the 12.5 per cent rate of corporation tax and to its retention up to at least the year 2025.

While this reassurance is welcome, in light of the moves by France and Germany we now need to see strong and firm action. Proposals to decide on taxation by qualified majority voting were strenuously and successfully resisted by the Government in the Nice Treaty negotiations two years ago. We must now act again.

The Government needs to introduce a strategy to copperfasten the low corporation tax regime without delay. Such a move would send out an important and strong message that Ireland is committed to a low corporation tax regime.

There is still considerable interest in Ireland among many US companies, especially for higher level activities. This is spurred by our success over the last decade, the existing level of US investment and the 12.5 per cent corporation tax rate on all trading profits.

The real challenge for the Government in the coming years will be to maintain an economy where companies can remain competitive in the face of a slow global economic recovery, increased competition from low-cost countries and from an enlarged EU.

In this regard, a pan-European tax harmonisation policy would do severe damage to Ireland .

Joanne Richardson is chief executive of the American Chamber of Commerce in Ireland