Even Irish clouds have a silver lining

WITH good news on the jobs front now as rare as hen’s teeth, it is especially heartening to see Google increase its already substantial investment in Ireland by setting up a new data centre in Dublin, while a Japanese-based company is creating 100 new jobs in Kerry.

The news from Kerry marks a welcome reversal of recent trends which saw hundreds of Irish jobs lost to low-cost Asian economies. In an ironic twist, JRI America is winding down its software development business at Bangalore in India and moving to Tralee.

No less significant is Google’s announcement that 30 full-time jobs and 200 temporary jobs will be involved at a new €75 million data centre. Ironically, the high-tech operation will tap into Ireland’s naturally cool climate by using outside air to cool equipment instead of turning on costly air-conditioning units. Even Irish clouds have a silver lining.

Thanks largely to Google’s on-going investment, Ireland is steadily gaining a reputation as a green silicon state. The list of companies now establishing international headquarters here reads like a Who’s Who of the internet world and includes names like Facebook, LinkedIn, Zynga and Twitter. Never have they been more welcome.

Obviously, Ireland’s 12.5% corporate tax rate is a significant carrot when it comes to attracting foreign companies. Indeed, without this generous regime, the Irish economy would be in a far deeper hole. The low rate is the envy of Europe and the driving force behind an export boom of high-tech and pharmaceutical products. This country is entitled to set its own tax rates and there should be no question of dismantling it.

On a note of caution, however, it is worrying that Ireland should also be gaining an unenviable reputation as a tax haven, no doubt partly due to the said corporate rate but also attributable to a complex taxation strategy called the “Double Irish” arrangement.

Effectively, this is seen as a form of tax avoidance whereby a US company could drastically cut its tax bill by channelling foreign profits through an Irish-based operation to a tax haven like Bermuda or the Cayman Islands. Essentially, it involves giving an offshore company ownership of the rights to exploit valuable intellectual property outside America.

Basically, it requires two Irish companies to complete the structure, hence the “double” tag, and relies on the fact that Irish tax law does not include effective transfer pricing rules. By availing of the loophole and shifting its income in this way, a US multinational could slash its overseas tax rate.

As things stand, the potential for industrial growth under the existing corporate tax regime is enormous. Ireland simply cannot afford to become a tax haven, or even to be seen in that light. A classic case of long-term pain for short-term gain, it would seriously damage the economy and could trigger a cut-throat tax war between EU states.

Clearly, it would be contrary to the national interest and costly for Ireland’s reputation if a weak system were to facilitate the “Double Irish” game. For that reason, it is vitally important that our taxation laws, as opposed to tax rates, be of best practice and in line with other EU states.

Every corporation that comes to Ireland merits a hearty céad míle fáilte. But it is imperative that Government strategy be based on attracting companies for the long haul — not short term gain.