Time for a bold move from Ireland over FDI
Donald Trump's election, coming on the back of the vote for Brexit, reinforces the need to review Ireland's market position and foreign direct investment (FDI) strategy.
We do not yet know whether US President-elect Trump will do in office all the things he said he would do during the campaign.
But there are a number of Trump's proposals which, if implemented, could impact on Ireland's small, open economy and we need to consider quickly how we would respond.
Trump proposes lowering the US Federal Corporate tax rate from 35pc to 15pc and providing a deemed repatriation of corporate profits held offshore at a one-time rate of 10pc (payable over 10 years).
He proposes eliminating most corporate tax special deductions - expenses businesses can offset against profits for tax purposes - except for R&D.
Under Trump's proposed corporate tax regime, US corporate tax would in future apply to a US-headquartered multinational corporation's worldwide income, with a credit given for taxes paid in other countries. This would end the current law's deferral of tax on these profits until repatriated.
Aligned to the above, he intends to pursue an "America First" trade policy. The result of these changes, if they transpire, is that tax may become less of a factor for US multinationals deciding where to locate.
Ireland's 12.5pc corporation tax rate is fundamental to our FDI offering, but it is by no means the only factor.
Talent availability, our pro-business regime and proximity to key markets have all served as significant advantages in the FDI marketplace.
But events such as Trump's election, and indeed the Brexit result in the summer, must be the impetus for us to review our market position and FDI strategy in its entirety.
With tax becoming less of a deciding factor, the focus of US businesses in future will be more on political environment, economic stability, regulatory regime, labour availability, operating costs, market access and so on.
A review of Ireland's overall FDI package should include a number of things.
Given the focus on non-tax factors, more capital investment in infrastructure is critical. In this regard, seeking a more flexible application of EU fiscal rules, which currently limit capital investment in infrastructure, will be important.
In 1996, Ireland made a visionary move to a 12.5pc tax rate on a graduated basis by 2003. This was a bold move. The rewards of this have been great. Finally, location is ultimately about real people and their families. Unless the housing, education and personal taxation package is made fit for purpose, we are at risk of our FDI base eroding.
But it is more than just our FDI package that warrants attention. Events such as this and the Brexit referendum result highlight the extent external developments can have on us here in Ireland.
They also highlight the need for balance in our economy, and so we need to redouble our efforts to support the re-emerging indigenous sector to ensure our economy has a better balance over the medium term.
The opportunities and challenges that an ever-changing political and economic global landscape bring are a stark reminder that making, and indeed maintaining, Ireland the best small country in the world in which to do business is a continuous task.
It must now be on the table to discuss the next bold move.
Pádraig Cronin is tax partner and vice-chairman at Deloitte.
Sunday Indo Business