American multinationals will not flee Ireland if the Government lifts the corporate tax rate in line with a 15 per cent minimum global rate, according to a senior US business lawyer whose firm advises more than 100 companies with Irish operations.
The international drive to extract more tax from big companies took another step forward in recent weeks when G7 leaders backed plans for a minimum rate, adding impetus to proposals that face a sharp test to pass the US Congress and are still subject to political agreement globally.
The Government insists it will keep the 12.5 per cent rate that has been the keystone of Irish economic policy for decades, underpinning more than 200,000 jobs.
But Douglas Stransky, head of international tax at Boston law firm Sullivan & Worcester, said any decision to adopt a 15 per cent rate in Ireland if the global plan went ahead would not precipitate a flight of American companies.
"You certainly aren't going to see an exodus of companies out of Ireland that have been there for years and have a lot of really good established presence there," he told The Irish Times in an interview.
“From everybody that I’ve talked to and all the people that I work with and my own opinion, it’s definitely not the end of the world . . . I just can’t imagine that companies are going to say ‘l’m not going to Ireland, forget it.’”
As efforts intensify around the world to overhaul business taxation after years of debate at the Organisation for Economic Co-operation and Development, finance ministers in the Group of 20 industrialised and developing states take up the baton next month.
Minister for Finance Paschal Donohoe remains wedded to the 12.5 per cent rate that has helped to establish Ireland as a European hub for hundreds of US companies. But growing momentum behind a 15 per cent global rate has raised questions in the Coalition as to whether Dublin should follow suit if refusing change would make an Ireland global outlier.
The global minimum rate and proposal to tax online big tech groups in countries where they make sales, instead of their corporate offices in Ireland, have raised concern that the Government could lose more than €2 billion in annual corporation tax receipts that are forecast to come in at €11.6 billion this year.
The Government is very wary of any corporate tax rate increase that would erode Ireland’s status as a location of choice for US companies and it has always opposed European pressure to harmonise tax.
However, maintaining the 12.5 per cent rate here while world powers went to 15 per cent could lead to the 2.5 per cent balance between the Irish rate and the global minimum going to multinationals’ home countries instead of the Revenue in Dublin.
Mr Stransky, a former director of international tax services at accountants PricewaterhouseCoopers, said such factors could leave Dublin perceiving that it had “no choice” but to move despite saying for many years that the Irish rate would never rise.
“I understand why if I was the finance minister I wouldn’t want to back off the 12.5 per cent after I’ve been so adamant about it,” he said.
“But then I’m also thinking: ‘Well hold on a second. If everybody is going to be at a 15 per cent rate why should Ireland lose revenue to the US, for example, or Switzerland or any other country. So maybe we should increase it because that’s what has happened in the world.’”
Certainty
Still, he cautioned that any move from 12.5 per cent would erode the certainty that had long attached to Irish policy.
“You could then say if you’re a multinational no matter what the finance minister says: ‘What happens if the global minimum tax in five years from now suddenly goes up to 20 per cent?’” he said.
“Once you’ve been forced to do something then can you be forced to do it again so maybe the finance min would say: ‘I’m just not going to raise the rate.’”
Business was in “wait-and-see mood” about the global tax talks, Mr Stransky said. He declined to name any of his firm’s US clients in Ireland, but it is known to advise companies in financial services, funds, tech, pharmaceuticals, biopharma, manufacturing and medical devices.
Although tax was certainly a factor in investment decisions it not “the only thing” on the list of considerations, Mr Stransky said.
“When I think of the work I have done over the years with US-based multinationals there are plenty of countries in the world that have a lower tax rate than Ireland,” he said.
“Multinationals don’t have discussions about ‘Well, let’s find the lowest-taxed country’. No, they have discussions about what makes sense from a business perspective. Where are our customers located? Where would it be good for us to have a hub? Where can we get people? Where can we expand? How can we easily get there?,” he said.
