Ireland Inc has many selling points when it comes to attracting foreign direct investment (FDI), but our enviable corporation tax rate ranks as one of the strongest. The 12.5 per cent rate has come under attack many times since its introduction, most recently in the form of ex-European Central Bank chief Mario Draghi’s proposals for improvements to EU competitiveness.
Tom Woods, head of tax at KPMG, says the latest proposals to consolidate the European tax base are unlikely to reach fruition. In September 2023 the European Commission launched a document called Business in Europe: Framework for Income Taxation (BEFIT). “This was a new iteration of the Common Consolidated Corporate Tax Base proposal that would require in-scope groups to calculate a consolidated European tax base that would then be allocated to member states using a formulary approach,” Woods explains. “But currently, we believe that there is little prospect of the BEFIT proposals being implemented.”
At that time a number of EU member states, including Ireland, said control over direct taxation should remain with national legislators.
“Concerns were also raised about the vagueness of the formulary approach proposed by the commission and the administrative burden the complex rules would place on businesses,” says Woods.
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While it remains unclear whether the Draghi report on European policy will have any meaningful impact, Woods says, the hope is that the commission will embrace calls for a refocus of EU policies to foster innovation and enterprise.
“These are critical steps that should be taken to ensure that Europe remains competitive with its international peers,” he says, noting that the introduction of additional complexity under BEFIT would conflict with this aim.
Harry Harrison, tax partner, PwC Ireland, says the new Irish government should undertake a comprehensive project to simplify the State’s tax legislation so that the administrative burden for US companies operating in the State can be reduced.
“Budget 2025 has seen the start of this process and we hope to see its continuation over the coming one to two years,” says Harrison.
There is widespread agreement on the key importance and value of US FDI to Ireland. The upcoming presidential transition in Washington is thus a big cause for concern, with incoming president Donald Trump having pledged to incentivise industries to return their manufacturing to the United States, cut the US corporate tax rate to match Ireland’s and introduce tariffs on imports.
Harrison says there is “no doubt that there is uncertainty about the future global economic landscape in light of the change in administration in the US”, and that, “as a small open economy”, the State is not immune to the change’s consequences. The introduction of significant tariffs on the shipment of goods to the United States and a reduction in US corporate tax rate could affect Ireland’s attractiveness, he says.
“Policies such as reducing the US corporate tax rate to 15 per cent for profits on domestic production and imposing tariffs on US imports could have a significant impact on the Irish economy,” says Woods. “Therefore, it is important now more than ever that we double down on ensuring that the other features, beyond the 12.5 per cent tax rate, that make Ireland attractive for investment are best in class.”
These efforts could include broadening incentives to attract the next wave of investment in new and emerging sectors such as AI and the green economy, he suggests, adding: “Also, it is critical that the cost of doing business in Ireland is minimised by reducing the cost of employment and reducing the administrative burdens placed on businesses.”
Harrison agrees – the State, he says, must continue to do all it can to remain competitive. “Areas where we feel continued focus is required include ensuring our tax regime is simplified ... and strategic investment in areas that matter for foreign direct investment, such as housing and infrastructure,” he adds.
“But many US companies in Ireland continue to see the opportunities Ireland presents as a gateway to Europe and further afield, with many non-tax-related benefits including a highly skilled workforce and a stable business environment.”