An enduring relationship pays rich dividends

Throughout the pandemic and more recently during the massive disruption caused by the war in Ukraine, US multinationals have continued to make an enormous contribution to the Irish economy and society in the form of increasing employment, corporation and other tax payments, investment in innovation, and support for communities.

“US investment is extremely important to the Irish economy from multiple perspectives,” says Deloitte tax partner and technology, media and telecommunications industry leader Daryl Hanberry. “In pure tax receipt terms, the increasingly significant corporation tax revenue is driven by US multinational investment in addition to a disproportionate amount of income tax receipts.

“The latest Annual Taxation Report published in September 2022 by the Department of Finance stated that foreign-owned multinational firms accounted for about one-third of all income tax receipts and around 80 per cent of corporation tax receipts. While much of the commentary has focused on the dependence on corporate tax receipts, it is clear that the Irish economy is very much dependent on the high-skilled and better paid jobs created by US investment into Ireland.”

According to American Chamber chief executive Mark Redmond, the best way to understand the importance of American investment to Ireland is to imagine what things would be like without it.

“For a start, a total of 342,000 jobs would disappear overnight – that’s 190,000 people employed directly by American companies and another 152,000 people who are employed indirectly as a result of their activities here,” he says. “The spend in the local economy would be down by almost €30 billion. That’s €12.4 billion in payroll, €8.8 billion in goods and services, €6.5 billion in capital expenditure, and other spending. One third of the country’s income tax revenue would disappear overnight, as would 80 per cent of corporation tax revenue. And 7,300 community projects supported by American companies would also suffer.”

The scale of that investment has a ripple effect across the rest of the economy, Hanberry notes. “Ireland ranks first for the export of ICT services globally according to the latest IMD report. We also outperform in other industries such as the aviation leasing industry, where 50 per cent of the world’s aircraft are managed or leased in Ireland. The presence of a significant level of cutting-edge innovation across multiple industries has elevated the skill levels of Irish talent. This has the effect of attracting even more investment into Ireland, but it also creates the environment for a thriving indigenous sector in the financial services, technology and life sciences industries.”

There are political and social dimensions as well. “US investment has been so important in so many ways,” says William Fry partner Paul White. “The relationship between the two countries has manifested itself in political support for the Good Friday Agreement, for example. There are social aspects too. Ireland has transformed over the last 30 years and that has been influenced by the presence of American companies here.”

Ireland’s success in attracting US investment is due to a number of factors, according to Hanberry. “Ireland has been very focused on attracting US investment for decades and the results of those efforts can be clearly seen today. The 12.5 per cent corporate tax rate is always seen as the key totem to attract inward investment but while it is an important factor, other less talked about factors play a significant role. Ireland is the only English-speaking member of the EU and the Eurozone, which is very attractive for US investment. The presence of a young and educated workforce, the number of transport connections to the US and Europe, a common law legal system and an environment where it is recognised as easy to do business all play a significant role in attracting US investment to Ireland.”

White agrees that the favourable tax regime is just one of the elements of Ireland’s attractive proposition for US FDI. “The two countries are quite similar culturally,” he says. “We are probably more similar to Americans in how we work than we are to people from mainland Europe. We have a young and mobile workforce, both Irish and European, and that gives us a talent advantage. People are coming here and bringing their skills to Ireland. We are moving from being a nation of emigrants to one of immigrants. We have a lot of Irish people returning as well and they are bringing their skills and expertise back with them and adding them to the melting pot. They are also bringing business know-how, that makes a big contribution to Ireland’s FDI success story.”

Our geographic position helps, he adds. “You can be in London in an hour and Amsterdam or Frankfurt in two hours.”

Hanberry points to two broad threats to future success in this regard. “Firstly, our high rates of income tax are a barrier to locating staff in Ireland, particularly in an environment where international remote working is playing more of a role in the war on talent. Moves, for example, to limit the application of the Special Assignee Relief Programme will have a detrimental effect on inward investment. Secondly, there are a number of infrastructural issues that need to be addressed in Ireland such as the availability of housing, a growing cost base and the supply of electricity to name a few.”

White emphasises the importance of talent. “Companies are under a lot of pressure, and we have seen some of them reducing headcounts,” he says. “I hope that will be a short-term trend but we need to monitor it and see where it goes. We still need continued investment into education to have the workers here to support both US and domestic companies. It always comes back to talent. When we speak to companies in the US, a big priority for them is maintaining a stable workforce.”

The need for consistency is highlighted by Redmond. “Certainty in economic policy is very important. The consistent approach to corporation tax policy over the last seven decades must be maintained. And when we look over the horizon at the next opportunities in areas like AI, machine learning, robotics, supply chain integration and automation where Ireland can be a world leader, we need to ensure we have the investment in the research and education ecosystem to support those opportunities.”