Ireland vulnerable to corporation tax changes in seeking FDI

Ireland is more vulnerable to changes in the corporation tax rate than any of its European partners when it comes to securing investment from the United States, according to a new ESRI study.

The think tank looked at the impact of corporate tax on attracting foreign direct investment. While the corporation tax rate was just one of a number of factors, the current low rate was seen as critical for Ireland.

“Policy analysis based on the research results indicates that the sensitivity of Ireland’s attractiveness to FDI [foreign direct investment] with respect to changes in its corporate tax rate is the highest among all EU countries in the case of FDI projects by investors from outside the EU,” the researchers report.

Brexit impact

They say a one percentage point rise in corporation tax rate here or a one percentage point fall in the UK would reduce the chance of securing FDI from outside the EU by more than 4 per cent.

The report, written by Ronald Davies, Iulia Siedschlag and Zuzanna Studnicka, says Ireland and the UK are seen as similar locations in terms of attraction from projects outside the EU and from within the services sector. Thus, any Brexit impact to Ireland’s benefit would largely come from outside the EU and in the services sector.

The study also says: “Ireland’s attractiveness to FDI would benefit from policies aimed at maintaining cost competitiveness and enabling further R&D investment.”