Ireland’s first tax rise since 2003: how does that affect the tech giants?
One of the many attractions why the likes of Apple and Google are headquartered in Ireland is a favourable tax environment.
However, the nation is now ready for its first increase in corporate levies in about two decades, raising the question: what impact will that have on the big corporate names based there?
Not much, going by the muted reaction from financial markets.
Shares of the tech giants have barely reacted to the news that Ireland will finally give in to global pressure and raise its tax rate to 15%, from 12.5% for companies earning more than €750 million in revenue by the year 2023. The previous rate remains applicable below that threshold.
The Irish Advantage
This dampened market reaction could be explained by the following reasons:
- The bigger firms will probably find it easy to absorb the 2.5 percentage point increase in levies, given that the resulting 15% rate is still quite attractive compared with a global average of 25%.
- Ireland remains a good entry point for the European Union’s single market, given it is the only majority English-speaking country in the bloc. This has become crucial since Brexit.
- The Irish government also provides business incentives such as a three-year tax exemption for start-ups and attractive R&D benefits.
- The country also has a reputable workforce that meets the needs of many multinationals.
The combination of these elements has created a favourable environment for global businesses, attracting a long list of big names including Apple, Google, Facebook, Microsoft, PayPal and Airbnb. Given that there’s more to Ireland’s appeal than relatively low tax, a somewhat small increase in levies for large corporations may lead to little change in the operations of the big multinational firms based there.
What is your sentiment on GOOG?
Pushback against `tax havens’
Ireland’s move comes after G-20 finance ministers backed a plan put forward by the OECD in mid-2021, which aims to tax multinational corporations more fairly. This has been a matter of contention between countries for long now, posing major challenges for countries with lower levies, as an increase in levies could lead to loss of foreign direct investment.
“There is a global push to rid the world of tax havens, interestingly Ireland was one of very few countries to hold out against this tax rise,” said Kathleen Brooks, analyst and founder of Minerva Analysis. “There is a shift in the global mind-set that big companies should pay more tax, and countries like Ireland were facilitating some pretty immoral corporate tax policies.”
However, this tactical move to increase taxes moderately only for large firms, Ireland may be able to deflect some criticism of its low levies without causing much economic damage for itself. With Barbados at 5.5%, Hungary at 9% and Gibraltar at 10%, Ireland is not the worst offender in terms of keeping corporate taxes low.
`Is Ireland attractive enough?’
There can be future pressure on the Irish government to bring its tax laws more in line with other countries. Part of the deal put forward by the OECD is to only allow companies to declare profits in the countries where they make sales – an enforcement of that clause could raise the risk of big multinationals leaving for bigger markets.
“In future, countries want big corporates to pay tax for sales that occur in their countries, not just in low regional tax havens,” Minerva’s Brooks said. “The question is, is Ireland attractive enough to attract these firms regardless of its tax rate? It has a highly educated work force, however, because of its size and the amount of sales that can be domestically generated, I think big corporates will choose larger centres in Europe for future investment.”
Markets in this article
Related topics