| 17.1°C Dublin

Multinationals are vital to this economy, so it is essential that we bury this 'tax haven' myth

Close

Senate Homeland Security and Governmental Affairs Permanent subcommittee on Investigations Chairman Sen. Carl Levin, D-Mich., holds up his own Apple iPhone, on Capitol Hill in Washington, Tuesday, May 21, 2013, as he presses Apple CEO Tim Cook for answers about how Apple, the world's most valuable company, and based in Cupertino, Calif., diverts a billion dollars to an Irish subsidiary as a tax strategy, according to a report issued this week by the subcommittee.  (AP Photo/J. Scott Applewhite)

Senate Homeland Security and Governmental Affairs Permanent subcommittee on Investigations Chairman Sen. Carl Levin, D-Mich., holds up his own Apple iPhone, on Capitol Hill in Washington, Tuesday, May 21, 2013, as he presses Apple CEO Tim Cook for answers about how Apple, the world's most valuable company, and based in Cupertino, Calif., diverts a billion dollars to an Irish subsidiary as a tax strategy, according to a report issued this week by the subcommittee. (AP Photo/J. Scott Applewhite)

AP

Senate Homeland Security and Governmental Affairs Permanent subcommittee on Investigations Chairman Sen. Carl Levin, D-Mich., holds up his own Apple iPhone, on Capitol Hill in Washington, Tuesday, May 21, 2013, as he presses Apple CEO Tim Cook for answers about how Apple, the world's most valuable company, and based in Cupertino, Calif., diverts a billion dollars to an Irish subsidiary as a tax strategy, according to a report issued this week by the subcommittee. (AP Photo/J. Scott Applewhite)

IT has been a very challenging few days for Ireland and its recently improved international reputation.

No country wants to find its tax practices and structure being questioned by anyone – particularly not by powerful members of a US Senate committee.

It was frustrating to watch events unfold when one considers how much Ireland's reputation had been improving before last week, particularly in relation to its fiscal position.

Nevertheless, here in Ireland, we are entitled to respectfully disagree with some of the commentary emanating from the US Senate's Permanent Subcommittee on Investigations, chaired by Senator Carl Levin.

While the phrase "if you're explaining you're losing" is often used by observers, Ireland has a duty to explain the nature of its tax offering and how it attracts multinational investment more generally.

The charge that Ireland is a 'tax haven' was a damaging comment that needed to be challenged last week. While the phrase itself gets thrown around during radio and television debates all too easily, there is actually an accepted international definition, as drawn up by the OECD.

That definition rests on a country displaying four key characteristics: having no taxes or only nominal taxes; a lack of transparency; an unwillingness to exchange information with tax administrations of OECD member countries; and the absence of a substantial activity.

Ireland does not tick these boxes.

The fourth criterion used by the OECD – that a country is a tax haven if it lacks "substantial activity" – is perhaps the most interesting one in a Foreign Direct Investment context.

Ireland's multinational investments, backed by the IDA, are huge in an Irish context, in terms of employment and materials and services sourced by those companies.

IDA client companies, for example, have total direct employment in Ireland of over 152,000 people, with in excess of another 100,000 indirectly employed in spin-off areas. This gives a total of over 250,000 people who are dependent on this sector.

There is also the €122bn of exports, the 75 per cent of the corporation tax take and the €7bn of payroll that the employees of foreign companies inject into the economy.

This is the kind of economic activity we want. The jobs provided are highly skilled, well paid and in many cases regionally dispersed around the country. Growing the entire sector is also a key plank in the Action Plan for Jobs published by Minister Richard Bruton.

Ireland has performed exceptionally well to build up this portfolio and in my role as IDA chairman I am determined to see the portfolio grow further, particularly when the country faces an acute jobs crisis. Getting that growth depends on a range of factors, not just tax.

I have met many foreign companies and the IDA board has reviewed many business proposals for investment into Ireland.

What is clear is that companies come to Ireland for a range of complex and subtle reasons. Some are obviously related to the tax offering, which, thankfully, is competitive internationally.

However there are many other factors at play, including the quality of the people available, the infrastructure here, and direct access to the European market.

A very crucial factor is peer recommendation and influence building.

Executives in foreign companies working in Ireland successfully influence their own head offices to bring in further investment. In addition, the success of these companies is clear to others in their sector, which in turn encourages those companies to invest in Ireland.

In other words, success breeds success. The ultimate aim is to provide a "home from home" to the companies. The other objective is to attract inward investment that stays for a long time.

So is tax unimportant? Certainly not, tax is very important and where Ireland positions itself in future on this question is vital. As was pointed out last week, these are global issues and tax competition is fierce at present.

The UK is clearly improving its offer, but Ireland's traditional rivals – Singapore, Switzerland and the Netherlands – are also highly aggressive in this space. It is interesting to note that many countries with higher nominal rates than Ireland can have very low effective rates, due to a variety of tax concessions that aren't always easily understood.

While there have been calls for Ireland to unilaterally change its tax code, perhaps a more sensible approach is to remain level-headed and participate in reforms which may emerge from discussions with our OECD and EU partners.

Be in no doubt that Ireland's international companies, many of whom have been here for decades, are watching how we handle the fallout from the Apple hearings. This is a time to move carefully, working closely with our international partners and companies.

It is vital that we continue to be a good corporate and global citizen, while also preserving the thousands of hard-fought jobs the foreign investment sector has provided.

Liam O'Mahony is chairman of the IDA

Irish Independent