In 1990, when I was a couple of years in business journalism, I wrote a report on tax payments from multinationals in Ireland rising sharply. All my life’s a circle, as the song goes. The regime that had offered longer-established companies zero tax on exports had just ended and corporate tax payments from multinational companies were to rise that year – to £57 million (about €66 million). A senior IDA executive declared at the time that the idea that these companies were not paying their fair share in tax “must quickly become a myth.”
Now they are clearly paying up, as Ireland benefits from a slice of tax on economic activity conducted around the world, some of which would more logically belong to other exchequers, notably the one in Washington. More than 30 years later, Ireland’s economic fortunes and particularly its tax revenues are heavily tied to the health and to the decisions of a few, really big players – the Irish Fiscal Advisory Council calculates that three are responsible for a third of all corporate tax revenue. Whoever is in government will want to stay close to Apple, Microsoft, Google, Pfizer, Meta and one or two others. They will need the cash to deliver on even half their promises.
Ireland had started its wooing of US multinationals through the 1970s, accessing the unique Irish-American contacts to build up a stream of American investment here which was unusual in Europe, a story well told in a new book by economists John FitzGerald and Patrick Honohan, entitled Europe and the Transformation of the Irish Economy. Through a mix of good judgment and good luck Ireland targeted high-growth, tech-led sectors, sowing the seeds of the extraordinary development of first manufacturing companies such as Intel, and later service giants such as Google and Facebook, now Meta.
Ireland has delivered for the big players. And their huge growth internationally has led to a large tax boost for the exchequer. That Ireland, so long charged with going too far to assist multinational tax planning, should benefit from the first phase of international tax reform in 2015 may seem counterintuitive. That it would again gain from a tax reform plan introduced by Donald Trump in 2017, intended to “bring investment home” to United States, might just seem ridiculous. But that is what happened – hence the large surge in real and tax-driven investment over the past eight years and in revenues to the exchequer.
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Normally, relationships between industry and governments are that of a supplicant looking for something. But when you are dealing with companies with turnovers into the hundreds of billions of dollars, who are responsible for a large chunk of your tax revenue, then the dynamics are different. Multinationals are not all important in the Irish economy, but their tax revenues have been the key swing factor pushing the budget into surplus in recent years and opening up options for whoever is in power.
And they know how to use their influence, quietly but very effectively. A nexus of company executives, senior legal and financial advisers to these companies and the IDA wields huge power. Senior civil servants would be very wary of “crossing” the IDA. Over the years ministers would have been told that, of course, a particular decision was up to them, but did they really want to risk hurting foreign investment? And so corporate tax decisions bear the imprint of multinationals and their lobbyists.
Sinn Féin has been no stranger to multinational boardrooms over the past year. The party wants to keep the big players onside and the companies want to get a sense of what it might do in government
Now, we are at an interesting moment. Lower profits in the tech sector could start to affect tax revenues here – corporate taxation figures for June will be a vital sign. There may, indeed, be some froth in the figures which will disappear. On the flip side, however, tax allowances on large intellectual property transfers these companies made to Ireland in recent years will start to run down, exposing some more earnings to tax. Everything has been running in favour of higher corporate taxes for Ireland in the last few years, but now there are pluses and minuses, making it hard to forecast. The risks of relying on a few small players remain obvious – but Ireland can hardly turn down the cash either. And so it goes on.
The other reason things are interesting relates to Irish politics. Sinn Féin has been no stranger to multinational boardrooms over the past year. The party wants to keep the big players onside and the companies want to get a sense of what it might do in government. So the series of meetings on both sides of the Atlantic is continuing apace.
The message from the party is that it wants to see the multinationals continue to invest here, and will not change the corporate tax regime. It is selling the stability message. It is also sticking with its argument that all employers should pay more PRSI – the existing Government parties may take this route too. Importantly, higher income tax on the portion of earnings over €140,000 remains part of Sinn Féin policy. The flush nature of the national finances could allow the party to delay, or abandon, this plan. Or to allow it to be negotiated away in coalition talks. It also wants to do away with a controversial income tax break for senior multinational executives assigned here from overseas.
The Coalition parties – Fine Gael in particular – will warn that the sky will fall in and multinationals will flee Ireland if Sinn Féin gets into office. What would actually happen is that the multinationals would watch carefully watch a Sinn Féin-led government in its early months. Businesses are, as one senior source put it this week, completely agnostic politically. They will have listened at the string of meetings, but will judge the party on what it actually does.
And some the most pressing issues for multinationals lie elsewhere, away from the world of tax. They are increasingly worried about the lack of capacity in the Irish economy – the lack of affordable housing for staff, questions over energy supply, water infrastructure and so on. In other words, the very issues on which Sinn Féin will try to win enough seats to propel it into government.
Multinationals don’t much care who does it, in fact they don’t care at all. But the future of their investments here will depend on Ireland showing it can tackle these key, increasingly crippling, constraints. The political challenge is to use the extraordinary tax resources being created by these companies to progress this agenda.