Ruling risks our hard-earned ties with US
Published 02/09/2016 | 02:30
The conclusion by the EU Commission that Ireland granted illegal state aid has put Ireland, the EU and US-EU relations at the top of the global agenda. How important is it for Ireland that this conclusion is challenged?
It is absolutely vital - for this country's reputation, for maintaining growth in our economy, for the continued delivery of high quality jobs and for continuing to attract top US multinationals to Ireland. Ireland's reputation as a great place to create high-value jobs and conduct business has been built on key pillars that include a highly-skilled workforce and certainty in tax policy.
Ireland simply cannot afford to have its tax policy and administration second-guessed in a retrospective fashion - businesses cannot make investment decisions in such an environment.
US companies directly employ more than 140,000 people in Ireland and a further 100,000 indirectly. In the 10 years to 2015, these companies spent an estimated €140bn in the Irish economy. In 2015, 80pc of all corporation tax in Ireland was paid by the multinational sector.
The amazing achievement behind these numbers is that Ireland is now a global leader in ICT, data, financial services and life sciences.
Our small economy on the periphery of Europe has worked hard over many decades to hone its attractiveness on the global stage. US firms in Ireland have been instrumental over that time in creating jobs and income for Irish workers, adding skills, raising quality standards, developing talent, accelerating innovation, providing business opportunities for indigenous firms, and tax revenues for local and national governments. The combination of a business friendly climate in Ireland and the large, in-country presence of US firms has helped transform and sustain Ireland's status as one of the most resilient and dynamic economies in the world.
Our small country with a population that is less than 1pc of the European total now accounts for 11pc of US FDI on this side of the Atlantic. Last year the IDA had a record year, announcing 19,000 new jobs - three-quarters of those from US companies. To accept this week's conclusion by the EU Commission could seriously undermine our standing in the battle for global FDI. Ireland's economic success has been built on a reputation of certainty in the tax code and a willingness to play fair but play to win on the global investment stage.
Ireland's success has been due to its delivery of certainty to those who want to create jobs here - certainty in key areas including fiscal and education policy. Businesses seek to minimise uncertainty - global businesses will be reluctant to invest in a region prone to uncertainty. This decision is unprecedented in its retrospective nature and its challenge to an independent Revenue authority.
Ireland is fortunate to have a robust and independent Revenue authority that is recognised as operating to the highest international standards. It implements a rules-based tax code legislated for in a transparent manner by the Dáil. It played a central role, with the Department of Finance, in the OECD-led Base Erosion Profit Shifting (BEPS) project that seeks to completely reform the international tax framework for multinationals.
Any attempt to undermine the independence of our Revenue authority and second-guess how it do its work must be challenged. Any attempt to undermine the necessary process for businesses to seek clarification from the Revenue authority on the application of the law must be challenged as a retrograde step that undermines the global move by all leading Revenue authorities to a cooperative tax-compliance model. The suggestion from a Commission spokesperson this week that "…under EU rules if you want legal certainty then you need a Commission decision" will not have helped the case for investing in the EU.
It is unprecedented that a national Revenue authority would be (1) over-ruled, (2) instructed to collect a tax that it does not believe is due, and (3) the instruction comes with an observation that some of this "tax" may actually belong to other countries who themselves should consider seeking its recovery. This uncertainty does not help the EU in its bid to attract inward investment.
It is worth emphasising that while the focus today is on Ireland this decision has profound implications for the EU as a region for inward investment and for the future relationship of the world's largest trading partnership - the US and the EU.
Ireland has successfully transformed its economy thanks to some key pillars including the certainty, transparency and universal applicability to all firms of our tax code. It is that certainty that has helped Ireland compete and that track record has created an investment relationship with the US that is remarkably resilient. For example, in the five very tough years for Ireland from 2008 to 2012, US business investment in Ireland exceeded the previous 60 years. That is down to our hard-earned reputation for certainty.
No price tag should ever be put on this reputation - not by Ireland nor by anyone else.
Mark Redmond is chief executive of American Chamber of Commerce Ireland