A US tax amnesty was the major contributor to the Republic's economy losing €18 billion in 2005, the latest figures show.
A report from the United Nations Conference on Trade and Development (UNCTAD) shows that multinationals operating here slashed their investment by $22.7 billion (€18.2 billion) in 2005.
The main reason for the fall in the level of investment was a US tax amnesty in 2005 that allowed US companies with overseas operations to repatriate profits and pay 5.35 per cent in corporation tax rather than the full rate of 35 per cent.
The Republic depends heavily on multi-national investment for job creation. Close to 150,000 people work in foreign companies supported by State development agency IDA Ireland.
The amount of foreign direct investment in the Republic fell to $211.2 billion in 2005 from $233.9 billion in 2004. The figures also indicate that last year was the first in which the level of overseas money in the Republic's economy fell significantly.
The US authorities introduced the tax amnesty on a once-off basis to attract investment back into its own economy and to pinpoint companies that might have been using foreign jurisdictions to avoid paying their full tax liabilities.
The bulk of multinational investment here comes from the US. Many of the companies with operations here also book profits in this country from their other businesses around the globe in order to take advantage of the Republic's 12.5 per cent corporate tax rate. But the amnesty prompted many of them to send large amounts of cash home.
Two of the biggest repatriations came from high-tech firms Oracly and Forest Laboratories, which returned €800 million and €1.05 billion to the US, respectively.
Reacting to yesterday's report, economist Jim Power said that while the US amnesty was a once-off event, it underlined the fact that the Republic faces stiff competition in the race to attract investment from overseas.
"We are facing competition from low-cost, low-tax economies like China, India and the EU accession states," he said. "The main message for policy makers is that we need to address issues of competitiveness."
IDA Ireland, the agency charged with attracting investment from overseas multinationals, did not comment directly on the UNCTAD report yesterday.
A spokeswoman said the agency continued to grow its share of the foreign direct investment market.
Last year, multinationals committed to spending €750 million on projects in the Republic. The year before, the figure was €5 billion, which was due to a major investment in manufacturing facilities by US microchip giant Intel.
