Why are so many Companies Moving to Ireland?

 

Galway Castle in Connacht, Ireland

Happy St. Patrick’s Day, everyone! I have talked about Irish history many times here on Cat Flag, but this year, I wanted to talk about something that is happening RIGHT NOW in the good ol’ Emerald Isle.

Right now, the largest medical device manufacturing company in the world is based in Éire. Dublin-based Medtronic makes everything from pacemakers to insulin pumps to surgical equipment. What a success story for a company that started as a single repair shop in 1949 in… Minnesota??

Another major manufacturing firm based in Dublin is Ingersoll-Rand, makers of heavy machinery for various industries. This company has grown to become a global superpower thanks to the luck of the Irish. Just kidding! Actually, shareholders of the already-huge American company voted to relocate their headquarters to Ireland in 2009.

For the past few years, many American companies have decided to pack their bags and move over the sea to the land of leprechauns and shamrocks. The list includes auto parts maker Johnson Controls, electric power equipment maker Eaton, pharmaceutical firm Perrigo, computer storage firm Seagate Technology, and consulting firm Accenture. Even those companies that aren’t willing to make such a huge commitment – learning Irish is hard, after all – will still choose Ireland as the base of their European operations. The largest company in the country is Apple Ireland, and the list of the largest firms in Ireland reads like a who’s who of major global enterprises: Google, Facebook, and Microsoft are all in the top 10.

So, why? What has got all these companies so interested in Ireland? Do they just like the taste of Guinness that much? Do they really believe the Irish are that lucky? Actually, it’s something a bit more practical…

TAXES

See, Ireland is the world’s largest tax haven.

Oh, wait, no, sorry. The Irish government insists it is NOT a tax haven. See, because most people see tax havens as a bad thing, a sneaky way for greedy companies to avoid paying their fair share. No, Ireland couldn’t possibly be a tax haven, it’s just a country that has decided to implement a tax scheme that benefits major multinational businesses in order to attract investments and jobs. Totally different thing.

Here in the United States, corporations pay federal income tax at a rate of 21%, plus whatever state taxes are charged in the states where they are based and do business. In Ireland, the corporate tax rate is only 12.5%, one of the world’s lowest. In addition, Ireland allows many companies to pay even less tax for certain kinds of business.

Let’s say you are a business that needs lots of patents, like a technology, manufacturing, or pharmaceutical firm. Any income you make from Irish patents you own is taxed at 6.25%. To Ireland, this encourages a robust research and development sector; to big American firms, it means they have an incentive to get lots of Irish patents.

It gets even better for multinational businesses, though. See, the United States only taxes foreign businesses on income that they make in the United States, thus for large companies that operate globally, becoming a foreign business by having your headquarters outside the United States is a very attractive option. Meanwhile, Ireland taxes income made outside Ireland differently than income made in Ireland, thanks to a series of tax treaties Ireland has concluded with many countries. This means some companies, like Apple, have made headlines for being able to get away with paying, in effect, only 4% in total on taxes. Indeed, headlines like this are one of the major reasons that the Trump administration and Congress thoroughly reformed U.S. tax law in 2017, to help close these legal loopholes. Ireland, on the other hand, gets 80% of its corporate tax income from multinational businesses, so it doesn’t exactly have an incentive to discourage these practices.

Besides, even with the United States now clamping down on companies that try to play fast and loose with their taxes, the number of businesses relocating to Ireland is about to go up, not down, thanks to one simple word…

BREXIT

The European Union is a topic I have covered many times here on Cat Flag before. It is a unique hybrid of international organization and federal government that 28 countries are a part of. However, that number is soon to become 27, as the United Kingdom is in the process of leaving the bloc. This is making many British companies think they would be better off taking a hop across the Irish sea.

Why? Well, big multinational businesses LOVE the European Union. They absolutely love it to pieces, and are one of the major forces behind its continued existence, growth in power, and expansion in spite of local opposition in many countries.

See, doing business around the world is very complicated. You have to comply with every local law in every country you operate in, pay taxes in each of these countries, and enforce your intellectual property rights in accordance with different standards in each country. The European Union, however, has harmonized the laws on the European continent, as EU law in things like trade, transportation, environmental and consumer safety regulations, intellectual property, and more takes precedence over the separate national laws. This is in much the same way that U.S. federal law trumps state law. Not only that, but within the EU there is a “single market” where goods and people can travel freely across the continent, making it much cheaper and faster to do business than having to pay tariffs and wait to check through customs at every border.

Companies in the United Kingdom made good use of these advantages, using London’s status as a global financial capital to expand across Europe with ease. With Brexit looming, though, British firms are facing being treated by the EU as foreign companies, subject to all the tariffs, trade restrictions, and regulations attached with that status.

But, wait, what’s this? An island that is right next door, that is staying in the EU, speaks English, and has really low taxes? How could a British company refuse? Already, 21 British companies in the financial services industry have plans to move to the Emerald Isle. These include Barclays and, ironically enough, Lloyd’s of London.

For Ireland, this transformation is bound to have a substantial impact on their economy and society. Once a nation known for famine and millions fleeing the island to settle across the world, in the very near future we may well think of Ireland as an economic powerhouse to which people around the world flock in search of opportunity. How the Irish people themselves respond to these changes is something that remains to be seen.

For now, though, I’d just like to wish you all a Happy St. Patrick’s Day! Sláinte!