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8 October, 2021updated 13 Oct 2021 06:12

How will corporation tax rise impact Ireland’s FDI attractiveness?

Ireland has succumbed and announced it will meet the global minimum corporation tax level of 15%. The country has been one of Europe's FDI stars in recent years. Is this position now under threat?

By Richard Gardham

DUBLIN, IRELAND – APRIL 19: (FRANCE OUT) A general view outside the Google European headquarters, on April 19, 2016 in Dublin, Ireland. (Photo by Vincent Isore/IP3/Getty Images)

Google’s European headquarters are based in Ireland, but will the country still be able to attract the big hitters now that its corporation tax advantage is gone? (Photo by Vincent Isore/IP3/Getty Images)

Ireland has enjoyed an exceptional few years as a foreign direct investment (FDI) hub in western Europe. The country has punched well above its weight, drawing in the likes of Apple, Facebook, Genzym, Google, GSK, HP, IBM, LinkedIn, Pfizer and Twitter, and through a variety of FDI drivers, chief among them being its 12.5% corporate tax rate.

The party is over, however, at least where Ireland’s tax advantage is concerned. The G7’s global minimum corporation tax plan left the country with little option but to fall into place, and that is what it has done. Ireland will now be increasing its rate to 15% for companies with a turnover of more than €750m ($867.82m), while those with a smaller turnover will still be taxed at 12.5%.

The table below shows that of the larger economies among the OECD, only Hungary and Chile now fall under the minimum threshold, although the former is close to agreeing a deal.

How this move will affect Ireland's attractiveness as an FDI destination remains to be seen. It had carved out a lucrative niche as a strong alternative to the UK, sharing an English-speaking population, a favourable time zone and a highly educated, tech-savvy population. It has, of course, a key differential to the UK these days, as it provides access to the EU, something the UK can no longer offer foreign investors. The recent statement by Intel CEO Pat Gelsinger to the BBC, in which he said that concerns over Brexit prevented the multinational from considering the UK as a potential destination for its soon-to-be-announced semiconductor factory, hints that Ireland will hold some advantages over its near neighbour.

Hopes will be high in Ireland that its many draws beyond the lower tax rate will be enough to keep its lucrative investors, and enable the country to attract many more.

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