Ireland remains in a strong position to attract foreign direct investment despite the looming upward change in taxation rates, the head of IDA Ireland Martin Shanahan has insisted.
As the main body responsible for attracting foreign companies to set up here, the Industrial Development Agency chief said the move would not have an adverse effect on the current base of activity.
“We have seen an extraordinarily strong flow of investment over recent weeks and months; the pipeline looks strong, Ireland’s proposition remains strong,” Mr Shanahan said, adding that the country would continue to win new arrivals.
He said his organisation would continue to fight for just that, albeit in a competitive global environment.
"[Tax] is not the only part [of company's decision-making]. Obviously the availability of talent, the pro-enterprise policies that we have adopted over many years and the general operating environment for companies to set up and scale up in Ireland is very strong," he told RTÉ shortly after the Government confirmed its decision to move away from a two-decade old, rigid policy.
Ibec, the group representing Irish business, said the tax policy shift marked a watershed moment for the country’s business model but that it was the right decision at the right time.
It said many advantages would be retained, including certainty regarding the most competitive taxation rate possible, the country’s track record, access to the European single market and talent.
“Today’s outcome with a firm commitment to a 15 per cent minimum rate, and no more, is a vindication of the State’s position and will provide welcome certainty for small open economies,” said its chief executive Danny McCoy.
“We also welcome proposals for Ireland to maintain its 12.5 per cent regime for those companies not in scope of the agreement.”
Mr McCoy said any changes to the system should be accompanied by reforms that would maximise competitiveness for substantial investment and activity, and make full use of key supports like the research and development (R&D) tax credit.
“Implementation of the new regime must also be cognizant of the final texts of both the OECD agreement and potential US legislation to ensure that Irish-headquartered companies are not disadvantaged in their global operations,” Mr McCoy said.
The American Chamber of Commerce Ireland, which represents US companies such as Google, Microsoft and Johnson & Johnson, said it has been a “steadfast” supporter of Ireland’s “robust defense” of its corporate tax regime.
Its chief executive Mark Redmond said Thursday's announcement - and particularly the removal of the wording of "at least" from the 15 per cent proposals - ensured predictability and stability for those investing here.
“In essence, the Irish Government’s clear-headed approach in obtaining clarity makes this global tax reform package a more predictable and thus better, proposal,” he said.
“It is important that smaller nations maintain sovereignty over their tax affairs. The OECD agreement now represents an opportunity for Ireland to reform and enhance our tax policy framework to fully reflect the modern global economy.”
However, reaction was not all positive. Oxfam Ireland played down the deal, labeling it an agreement made for the rich, by the world’s richest countries.
“It is hugely disappointing that the legitimate and strong concerns coming from a broad coalition of developing countries are being ignored...low-income countries lose the most tax revenue due to tax avoidance,” it said in a sweeping critique of the deal.
Peter Vale, Tax Partner at Grant Thornton Ireland said that while an often overlooked detail, Ireland is not actually obliged to increase its corporate tax rate simply by signing up to the agreement and could, in theory, retain the 12.5 per cent rate in place since 2003.
“However, by not increasing our corporate tax rate, Ireland would effectively be ceding tax revenues to other countries,” he said.
“The positives today for Ireland are the removal of uncertainty over the tax rate and the fact that we will continue to offer one of the lowest corporate tax rates in the developed world. The case for companies to invest in Ireland will remain compelling.”
Mr Vale believes that whatever about today’s development, the greater threat to foreign investment in Ireland will arguably be any future US tax changes.
Despite the OECD’s agreed 15 per cent global minimum, he said the US may seek to levy tax in excess of 15 per cent on the foreign profits of its overseas subsidiaries.
Conor O’Kelly, chief executive of the National Treasury Management Agency (NTMA) – the agency responsible for borrowing money on behalf of the State – said the potential tax change was the primary concern among international investors who lend.
“Corporation tax and certainty around Ireland’s fundamental industrial model around attracting multinational corporations... any threat to that or any change to that is understandably a concern,” he told the Public Accounts Committee ahead of the announcement. “And they’re watching developments very, very closely.”
Chambers Ireland said the Government’s strategy has created certainty for businesses at a critical time when they are planning for post-pandemic investment.
“The unknown upper band of the proposed rate was causing some global businesses to hesitate in committing to capital investment plans,” said chief executive Ian Talbot.
“Retention of the 12.5 per cent for smaller firms is also welcome and will help our domestic economy prosper into the future.”
Political reaction too was central to Thursday’s announcement, given successive governments had for years staunchly defended Ireland’s taxation policy.
Shortly before Cabinet confirmation, Tánaiste and Minister for Enterprise Trade and Employment Leo Varadkar had said that following an international consensus, Ireland could not be undercut overseas.
He said the Exchequer would lose an estimated €2 billion a year in corporate profit tax but that this was merely an estimate that “may well be updated”.
“We want to make sure that our research and development tax credit is protected. We also want to make sure that if countries sign up to this, they actually implement it,” he said. “We do not want to be the country to implement it but for our competitors then not to do so.”
Earlier in the day, Taoiseach Micheál Martin had also pointed out that, given a move to continue at 12.5 per cent for companies with lower turnovers, the vast majority would be unaffected by the move.