Irish Examiner view: OECD tax deal will not cause an exodus of tech giants

Tue, 04 Apr, 2023 - 01:59

The forthcoming end of Ireland’s 12.5% corporate tax rate is being looked at by many as the end of an era in which the country made great financial hay while the tech sector shone.

But is this an end or is it a beginning?

This week, Finance Minister Michael McGrath will bring a memo to Government to introduce, from January, a 15% global tax rate for multinationals, with annual turnover in excess of €750m.

Under the OECD agreement, countries can retain lower rates for smaller companies, so Ireland will have two headline rates: 12.5% and 15%.

Some analysts have maintained that Ireland’s successful economic model could be badly undermined, fearing an exodus of tech giants from the country.

In the toing and froing since Ireland signed up to the new OECD global tax agreement — to which some 140 countries have committed — it has emerged as unlikely there will be any such exodus, because for many of the companies involved, the 2.5-point increase is no big deal.

Tax experts agree a taxation regime for the digital age is a necessary thing and also concur that, in reality, many big tech firms never paid the 12.5% rate anyway, shuffling profits through places such as Bermuda where the tax rate is zero.

The likes of Google and Facebook owner Meta are merely among the new wave of thousands of foreign companies — there are some 1,500 currently, many of them American — lured to Ireland since 1949.

The point of low Irish tax rates, historically, was that it was never simply to generate corporate tax revenue, but to create employment, and it has been hugely successful in that. Certainly the new rules requiring companies to pay tax in their countries of activity will require careful fiscal balancing by the exchequer, but this factor, alongside the corporate tax rate hike, is not the end of the line either.

Not all foreign direct investment is created by any single sector and if the IDA can continue to attract companies other than those headline tech entities, then the economy can continue to thrive.