Inis Man wrote:
Col. Max Pyatnitski wrote:
Thing Fish wrote:
I always thought 12.5% rate was a band aid and not intended to be the industrial policy, though somewhere along the line it did become industrial policy.
Except when you start arguing to address the (possible/potential) US action by lowering our own corporation tax even further (was presenter on one of the morning radio programmes last week either Newstalk or RTE R1).
To tease out some of the debate: I think on balance of probabilities there are a lot of MNCs here because of our tax rate (the other stuff "young educated workforce", etc., are probably more hygiene factors). The key question is where is it important for our tax to be lower than to continue this. If USA corp tax drops, then that creates one reduced gap. However, surely a lot of operations in Ireland are here not because it's cheaper-tax than USA, but because it's one of the lowest tax ways to get into the EU market (hence importance of EU transfer pricing regulations etc., as observer35 has discussed). For those scenarios, the US rate isn't as critical, it's rather trade deals that matter more.
I've heard this line trotted out as an antidote to the fear of US corp tax cuts. I think it makes some sense, but can't be the whole story (some of the biggest inversion deal antics involving Ireland were definitely about finding a globally-low tax rate, rather than just a local minimum in the EU market).
The MNC's are only in Ireland for tax reasons. No other. The history of the 12.5% should be instructive. Before the universal 12.5% rate was introduced in the '90's the corp rates were initially 50% for domestic corps and essential 10% for MNC's. During the '80's and early '90's the domestic corp rates were slowly lower to around 40%. But the MNC's payed an effective 10%. Then when EC harmonization rules started kicking in the early 90's the bigger high rate countries started making a big deal about killing the 10% rate for MNC's. The French were making lots of threatening noises but it was the Germans especially, and their negotiating team, that made a very concerted effort to shut down the MNC special tax rate in Ireland. Over a space of a few years the Germans had slowly but surely inched the Irish, who were backed somewhat by the British and the other EC countries that had dropped their rates in the early 90's , into a corner that Berlin thought the Irish could not escape from. The MNC's would have to pay the same rate as domestic corps. There could be no special treatment.
But even in the 90's, before the whole MS, Google, Facebook etc mega taxscams had really got going the Irish government knew that about 70%/80% of the MNC's would up and leave if they could no longer pay the 10% tax rate. Those were the numbers bandied about at the time. So the arch cute hoor, Padraig Flynn, who was a commissioner at the time, pulled off the stroke to end all strokes. There would be no more special treatment for MNCs..... Everyone would pay 12.5%. The Germans were apoplectic. They tried for some time afterwards to find some way of stopping the 12.5% rate going through but as they had spent so much time building the "special treatment" trap for Ireland they could not escape the trap they had built.
And thats why Ireland has a 12.5% corp rate. Because the government decided that without an exceptionally low tax rate the MNC's would not stay, let alone come. They have spent a huge amount of effort, and immense amount of political capital, defending it over the years. It economic terms, it is an existential question. Without it a big chunk of the primary economy and most of the export economy would fade away fairly quickly. In less than a decade. A lot in the first three to five years.
The above may all be right (but I simply don't know, MNCs and tax arrangements are not my bag) but its conclusion surely misses the point that in killing the golden goose, a farmer develops valuable new skills that help build the replacement economy (golden goose II). JMC ignores that the large number of med devices and pharma companies which came have now helped us acquire significant know how in the sector, and companies will take the tax pain to hang on to that know how advantage.
My area is software and to a lesser extent hardrware. But I am very familar with biotech / med tech as it is such a big deal in the parts of the West Coast I know best.
With software / hardware, and I have been following this closely in Ireland since, well, 1983, there is no indigenous Irish software industry and there has been zero meaningful spin offs from MNC's over the last 35 years. When compared with equivalent op / hq centers of the same MNC's in the US. Apple, especially pre'97 Apple, generated literally dozens and dozens of companies in the greater Bay Area over the last 35 years. And not just two guys in a garage operations either. Start with Android and work your way down. MS not quiet so good in the Seattle area but still a dozen or two non trivial ones. Apple in Cork and MS in Dublin. Well I can think of just one. And they are no great shakes. Smallish player in a niche field.
In my business if you dont make at least 50m/100m revenue in a few years, real revenue - good net profit margins, not dot com makey uppey numbers, you are not a real company just a small time operation. The Israelis have no problem doing this. Quite the opposite. Churn them out by the dozen, year after year. I've seen the Finns and Swedes do it quite a few times. Even the Norwegians seem to pull it off on a fairly regular basis. And none of those countries act as tax havens for MNC's.
And its got nothing to do with VC. The southern Irish just dont startups or real entrepreneurship or taking chances. The simple fact is Ireland is still very much a deeply risk averse peasant culture. From top to bottom. Despite all the lip service paid the culture is profoundly safe job / find a local angle / never take risks. And failure is a humiliation that everyone else will take a silent satisfaction in. A very real satisfaction.
Ireland does small local businesses. Occasionally it does large local businesses, often based on some rent seeking monopoly or other. It does not do dynamic startups that will grow to a meaningful size (100m+ revenue) that will have an impact or even a leading position in a minor niche let alone a major niche in any high tech area. That just the way it is. The probability of indigenous major player coming out of Ireland is about the same as out of Portugal , Greece or Italy. Not going to happen. Lots of small stuff. Which stay small. There are lots of smart Irish, Greek and Italian entrepreneurs. Who build companies in places like the UK and especially in the US.
So yes, the MNC tax havens is all Ireland has going for it. And any crumbs that result for the very small local employment by MNC's, when compared to stated revenue, is all Ireland will ever see from their presence. In the '70's and '80's the presence of the MNC's was suppose to generate indigenous down stream and upstream local companies. Never did. Because Ireland is not Finland or Sweden. People left Nokia and Ericksons, to name just two over the last last few decades and formed successful companies. Quite a few. Not going to happen in Ireland. Local people working in Irish MNC's want safe long term jobs and a house with a 25 year mortgage.
The culture in Ireland I see now is pretty much the Ireland I saw in 1985. With some cosmetic changes in the public pietys and some new flashy buildings around the country. But scratch the surface and it is still a profoundly risk averse, conformists, cute hoor culture. The tax angle is nice but the first order of business when doing a start up in Dublin should be - when do we move to London and / or the US. That is only only real hope for any chance of success. Otherwise you are doomed to be little more than yet another of the many small time operations. Seen lots of those over the years.
California has been such a great place to do startups because not only is their no stigma to failure but there is a huge kudos to have tried and failed. Because failure is the usual outcome in high tech. Trying and failing is held in fair higher esteem that not having tried at all. In fact there is a real stigma to not having tried if an opportunity presents itself. And if you succeed then its great, congratulations, what are you going to do next. Something bigger and better we expect. Serial entrepreneurship is the real secret of Silicon Valley. No stigma to failure and all pervasive culture of doing it again, whether the last one succeeded or failed. Especially if it succeeded. In fact raising real finance is easier to raise if you've got a few failures behind you. Shows you have the right attitude, but have not got lucky yet. Maybe the next time around.
Try even beginning to explain that culture to anyone in Ireland. I have. Nobody gets it despite the nods and friendly smiles. Never will, I strongly suspect.