I was somewhat surprised to learn that Fintan O’Toole takes his policy views from US talk Radio (I would have thought he was more a Guardian reader myself) but that probably explains why his view on foreign direct investment and Ireland’s industrial policy is so out of touch with reality.
As the economist Seamus Coffey recently argued elsewhere we need to kick back on ill informed taunts that Ireland is some kind of tax haven. Multinationals make a massive contribution to the Irish economy. According to a recent report by Grant Thornton, there are 1,033 overseas companies operating in Ireland, employing over 161,000 people, spending €24bn, paying Irish staff €8bn in wages and generating €122bn in exports.
The taxation of multinationals is based on a fundamental principle: corporate profit-taxing rights are granted on the source principle. Put simply countries can tax the profits from operations located in their countries. Although some of the world’s largest companies have operations in Ireland, we can only tax them on the profit they generate from their activities in Ireland, which we do.
The issue being debated in the US at the moment however relates to a loop hole in the US tax code which allows ‘deferral’ of corporate income taxes, and allows US multinationals to delay certain tax payments until the profits are transferred to US-incorporated entities in their corporate structure. As Seamus Coffey pointed out a result of the deferral provisions in the US tax code, some companies create an artificial division between their US and non-US source profits and give the appearance of very low tax rates on their non-US profits. The reality is that most of the profit is sourced in the US, and the companies owe US corporate income tax on those profits. It is not the case that the profits are untaxed.
In plain English we aren’t the problem; the US tax code is. Even the US Treasury Secretary has written to the EU Commission stating that while they don’t collect the tax until repatriation the US system of deferral “does not give EU Member States the legal right to tax this income.”
Ireland’s 12.5% corporate tax rate is a fundamental part of our offering to multinationals but equally important are access to EU markets and most critically talent. IMD ranks Ireland’s educational system as being amongst the top ten in the world. We rank number one in the world for the availability of competent senior managers and flexibility of our workforce. If (for example) you want to find people who really understand pan-European operations, Shared Services or Compliance you come to Ireland.
Ireland’s big idea isn’t attracting foreign direct investment its building Irish capabilities. Foreign direct investment is one of the key ways we build real capabilities.
Couple of practical examples Dublin is known as the shared services capital of Europe. We have built that expertise over many years. We are now applying that expertise in shared services to the business of Government. The adoption of Shared services by the Irish Government is core to public sector modernisation and delivering better and more cost effective public services.
Another example the Tyndall Institute which has built up a huge expertise in working through working on research projects with some of the world’s leading high tech multinationals. It is now partnering with Teagasc to apply that learning to developing the food sector in key areas like traceability. In short we are using capabilities developed with multinationals to deliver better Government and develop Irish industry.
My work as Minister of State was focused on making sure we continued to build Ireland’s capabilities through a new national Innovation Strategy and a new national Skills Strategy. Both strategies are fundamentally about making sure we have the skills and capabilities to compete in a rapidly changing world. Both strategies were developed in partnership with the key stakeholders and can only be delivered by a partnership between Government, Industry and Academia. The innovation strategy offers us the potential to use the Irish research community to build cross industry collaboration between some of the world’s leading companies here to really drive innovation. The Skills strategy will ensure we have the highly skilled workforce necessary for the incremental innovation needed to stay competitive.
The task of the last Government was to stabilise the public finances and start getting people back to work. This gives us the resources to future proof the Irish economy by investing in education, research & innovation. It gives us the resources to turn our economic growth into a social recovery by investing in new and reformed public services, and ensuring everyone has the opportunity to benefit from a return to growth.
The success of the last Government (and we had some pretty major successes despite what our critics say) provides us as a nation with the time and space to think about the future we want for our children not just how do we pay the national debt. We now for the first time in almost ten years have real choices. We can start to think about the big ideas that will shape Ireland’s future. That is a task not just for Government but for all of us. We have a second chance of succeeding as a nation. I hope we use it well.