via Red & Grey Design Sponsored Content Ireland: An economic model of substance Is low corporate tax the key to a thriving economy?

The recent U.S. administration proposal to slash the corporation tax rate to 15 percent follows the commitment from the U.K. government to reduce its rate to 17 percent by 2020 and, ultimately, to be the lowest among the G7. This trend towards lower global corporate taxes is one which Ibec, the Irish business representative group, welcomes wholeheartedly. Ireland has been at the forefront in stimulating business through competitive corporate taxation to increase investment, trade, employment and tax revenues, and Ibec believes that Ireland is in a position of strength to continue this momentum.

The proposition for multinational firms to invest in Ireland remains compelling, thanks to years of tactical policy planning by successive Irish governments. The majority of U.S. firms use Ireland as a platform to access the EU and other international markets. This will remain the case no matter what the corporate tax rate is in other jurisdictions, particularly in a post-Brexit EU where Ireland will be the only remaining Anglo-Saxon economy in the EU with substance.

Through EU membership and embracing of globalization, Ireland has been catapulted from a small island nation with low economic activity, to a highly competitive country with living standards that are among the world’s highest. Ireland’s support of the European Single Market and its role in promoting the Base Erosion Profit Sharing process within the Organization for Economic Cooperation and Development (OECD) have been transformative for the Irish business community.

Underpinning the business model is a 12.5 percent corporate tax rate, the second lowest in the EU.

Underpinning the business model is a 12.5 percent corporate tax rate, the second lowest in the EU, but applied to a wide base. While it is a core plank of Ireland’s success, it is part of a multifaceted package of measures that are attractive to globalized businesses. This includes a highly educated, English-speaking workforce, ease of access to both the U.S. and to mainland Europe, and an ecosystem of collaborative research.

Ireland has a “best in class” R&D tax credit and patent income box, giving rise to more companies locating their high-value capabilities in the country. This has resulted in Ireland, a small open economy of just less than 5 million people, becoming one of the most globalized, trade-dependent and competitive countries in the world. Last year, Ireland jumped up the IMD World Competitiveness ranking from 16th place to 7th.

Ireland also has one of the youngest and most highly educated workforces in the world according to the OECD — 52 percent of 25-34 year olds have a third-level qualification, which is 10 percentage points higher than the average of industrialized countries. The Irish have the fastest growing population in Europe with the island expected to reach 10 million people by 2050, with more than half the population under the age of 35.

The global financial crisis hit Ireland hard, but the perception that it had, Icarus-like, flown too high has been challenged by the strength of the subsequent recovery. Output is back beyond Celtic Tiger levels, with all sectors of the economy returning to growth, and unemployment due to dip below 6 percent. Debt ratios are plummeting and a balance of payments surplus is indicative of a vibrant business model.

Ireland’s pledge to remain committed to a post-Brexit EU will provide countervailing opportunities.

So, what is going on in Ireland? Surely given Brexit and new competition from the U.S. to bring manufacturing jobs home, the uncertainties for the Irish business model are greater than ever? Although these are substantial threats, Ireland’s pledge to remain committed to a post-Brexit EU will provide countervailing opportunities, while the U.K.’s departure from the Single Market will put it at a trading disadvantage.

Another crucial advantage for Ireland is the OECD G20 corporate taxation process. It has established that tax policy must be matched by substance. Ireland, with its established track record for corporate investment and its common-law legal structures, is a strong selling point for attracting such corporate balance sheet migration.

Ireland has experienced a cascade of such corporate substance in the last three years with the consequent flow of output pushing its GDP levels to heights that have attracted international skepticism.

Ireland is home to all of the top 10 global technology companies.

However, a small snapshot of our open economy highlights the substance behind this success. Ireland is home to all of the top 10 global technology companies; 18 of the world’s top 20 pharmaceutical companies and its food and drink sector is Europe’s largest net exporter of dairy ingredients, beef and lamb.

Many reasons can be attributed to this continued success, but substance is generally never acknowledged as too high on the list. Yet substance is precisely what Ireland has built up over the last quarter-century. Outward direct investment matches foreign direct investment with Irish corporations employing more people in the U.S. than U.S. firms employ in Ireland. Irish household net wealth is exceeded only by Luxembourg in the EU. In a world where substance matters, Ireland and its businesses are well poised for the challenges ahead.

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