“People are to Ireland what Champagne is to France and oil is to Texas”. The wow of Irish politico in global tax reform — with Padraic White, former IDA MD: Transcript
Listen to the podcast about the history of Ireland’s corporate tax regime from minutes 2 to 11.
(Geraldine) Padraic, it is an absolute pleasure to have you back again and very timely, given that the headlines at the moment are about tax reform and tax regimes and how Ireland Inc is going to be affected from here on out.
We have an incredible person here because Padraic, although his career as MD of IDA Ireland is a little bit over 30 years ago. What is remarkable is Padraic during that time - certainly, a lot of us won’t really realise that we’re enjoying the fruits of Padraic’s legacy. There are many strands to his legacy, and some stellar ones indeed. But what remains measurable is his passion for Ireland. Still, even though he’s 30 years outside of his MD role, which means that it wasn’t just a job for him. It was a way of life and a very dedicated Irish person to the cause. Thank you for being here today.
We’re going to have a look over how the evolution of Ireland’s low corporate tax regime has happened because many of us at the moment is hearing, or we’re working towards 15 per cent from 12.5 per cent.
Padraic, let’s go back if you wouldn’t mind giving us a whistlestop tour of the timeline and the changes of Ireland story around corporate per tax regime starting in 1956.
(Padraic) I suppose the origin does go back to probably the worst years in Ireland’s history as an independent country. After the war, Ireland was in really bad shape.
And in the mid-fifties and immigration was at an unprecedented level as an independent state. And in fact, it was so bad that there was a special commission on immigration to see, could immigration actually be ended. Many people believed that immigration was part of the Irish way that it would never end. So in the middle of those dark years, in the mid-fifties post-war period, people had just made rationing. Basically, the government of the day in 1956 introduced quite as effectively a zero tax on the exports of companies.
That may appear generous. But the fact of the matter was that Ireland’s industry had almost no exports at all. So it was almost, it didn’t cost anything at the time, but as international companies came into Ireland. And as the idea of the time began to present the fact that this effectively meant zero tax on your exports.
It became a powerful tool in the early days of promoting investment in Ireland. But its origin was out of desperation. Bear in mind. Since the mid-thirties that Ireland had a protectionist industry. So those hundred per cent higher-ups around the industries they weren’t involved in exports they were involved in just supplying the Irish market.
(Geraldine) And we were very insular at the time, tote, culturally and commercially.
(Padraic) Totally insular. And so in hindsight, this was us giving nothing way because we had no exports, but as it turned out, it was a brilliant initiative because it became in time an amazing incentive for companies and particularly international companies to come to Ireland because that they had no interest really in the Irish market, they were hundred per cent exporting.
And as they exported, then Ireland built up the base of the pharmaceutical and electronics to the older industries and so forth.
So that zero tax, in fact too late, lasted from 1956 until 1981. I said it was the big change that happened then was when we joined the European Union in 1973, there was a very clear ban in the European Union against discriminating in favour of exports. You couldn’t favour exports as against your domestic sales.
So it was inevitable after we joined in 1973 that the export tax relief would have to go right on it. Some of the own success stories, how Ireland actually moved successfully from a zero tax for 25 years to what became a 10 per cent tax in 1981. That shift from zero to 10 per cent actually was a bigger challenge, in my opinion, than what we’re facing now, which is a move of two and a half per cent from 12.5 to 15 per cent.
(Geraldine) So, Padraic, can you tell us what was going on at that time regarding the government of the day and what were the challenges they were facing?
(Padraic) It was clear that the EU was going to end favouring exports. So the question was then, Ireland had a zero corporate tax on profits from exports. So what were they going to do? They couldn’t favour exports, so what they could come up with?
I was involved at the time, the late seventies, in a group that was trying to figure out in with the department industry, what were the alternatives? And effectively, we came up with the proposition that instead of a zero tax on exports that to be a 10 per cent tax on all manufacturing profits, whether they were for exports or on the whole market.
(Geraldine) So this was the first time that the home market was included?
(Padraic) So that jumped from zero to 10 per cent. The view was that it wouldn’t offend the EU. They couldn’t say you discriminate against exports. So the big challenge and I had just become managing director of the industrial development authority was how to sell, moving from 0 per cent after 25 years to 10 per cent. That represented significant challenges and indeed a lot of nervousness as to whether we could carry it off. Because it was the question is this, the start of a slippery slope by Ireland to higher and higher taxes. So we decided as an agency and with the government, we decided to be very bold, try and make a virtue of it.
But then remember we had fantastic advertisements like the following, like “max tax 10 per cent for 20 years. By any standards internationally, that was a hell of an offer. But it still represents that communication.
(Geraldine) Where was your target with this communication at the time?
(Padraic) The whole international investment community. The same international investment community that the government and IDA are concerned with today when they’re shifting from 12.5 to 15.
So we had very bold ads, and we promoted heavily internationally. It’s the same issue as today - it was predictability, clarity, et cetera. And we successfully made a move that transitioned from zero to 10 per cent. So, in fact, that was a huge shift at the time.
(Geraldine) We do know that there’s a high majority of the FDI that came in have been here for over a year.
(Padraic) Yeah. And that’s a testimony to the old strategy of the government and the IDA over the years. And less opposite all the criticism, which was that these companies fly by nights. They’re only here for the grants, and they’d be gone with the grants are over. Whereas we were always clear because strategically, they had come to Ireland to be what now they call them shorthand, EMEA — European Middle East and Africa, as their base.
And you’d see that today, and it was an absolute total logic in Ireland. It’s encouraging that we’ve gone beyond the sort of total scepticism about the foreign companies that were there for many years. And now people see that they’re here, they’re offering high-class employment, to their sons and their daughters and their husbands and their wives are in these fantastic companies.
And they see that they have good standards.
(Geraldine) Yes. It has raised the standard of living for all of us, whether we’re involved in any of these companies directly, indirectly. IT has raised the standard of living for Ireland, generally.
(Padraic) And in terms of the quality of their employment and their management, it was a huge spinoff, obviously off quality in the philosophy of management they’ve brought. And many Irish people who worked in these companies have gone on to establish their own companies, and benefit Ireland in many other ways.
(Geraldine) That’s with the support of other government hands at the time. When did you manage to get it to the 10 per cent? What was going on abroad? What was the type of green eyedness that you noticed that at the time?
(Padraic) It was high drama because I remember as a young planner in IDA going to meetings in Brussels to discuss effectively, end of our exports sales relief and so forth.
I could see around the table the other member representing the member states. You could feel the sense that Ireland is now: “we’ve got them. They can’t continue on this incentive that they had, and that’s been so successful”. So they thought we were going to have to end any favourable tax regime, but that’s where Ireland came up with a 10 per cent tax for all manufacturing where the exports are on the whole market. There was no way at that time that the EU could oppose it. So it caught the elder members by surprise.
There is underlying envy at the success of Ireland that continues to this day, as why Ireland this small island on the edge of the Atlantic, why so many of the leading companies in the world established their European base in Ireland?
That’s why there’s so much focus on Ireland. Why are they obsessed with Ireland? Because we’ve been so successful, but there’s very little understanding, I think in Ireland, of the reality of politics of actually the competitive nature of the industry and many people feel as something almost quote “unnatural” of the idea of the small island, that’s actually two strips of water from the core European market.
Listen to the podcast about the competitiveness within the EU and Irish success with low corporate tax from minutes 11 to 15.
(Geraldine) Padraic, this is probably an item that a lot of people don’t understand. Yes, envy could be felt, but the tax regime was not under the treaty. Therefore, other European countries or our competitors had it within their own control to be as competitive. Can you talk to us about what was wrong with their own use of agency there?
(Padraic) No, but exactly. Other countries could lower their tax. And in fact, most countries have sought to lower their taxes. And over the last ten years, roughly within the European countries, they’ve effectively, on average, lowered the corporate tax from about 30 per cent to 20 per cent. So they’ve already been engaged in lowering their taxes at the same time effectively as Ireland has been increasing it gradually, right?
The reason they can’t come down to 10 per cent or 12 per cent is that their expenditures are so dependent on their high corporate taxes. They can’t actually slash them to the extent to bring them down to 12.5 or even 15 per cent. But they’re all on a path of trying to reduce them.
(Geraldine) However, I suppose COVID does put a lot of countries back somewhat because of the expense that it has caused nations. But one of the outliers here, we would call a progressional path, would be the reduction of the percentages. In the UK in 2010, they were at 26 per cent. Then they went down to 19 in 2021, and they’re projecting in 2023 to 2024 that they will be back up to 25 per cent. That’s a regression.
(Padraic) Yeah. That’s surprising regression because they were definitely on a path to pick them right down. They were at 19 and planned actually to come down to 18. So they were on a very aggressive path of lowering their taxes, and in some of the discussions on Brexit, the Brexiteers floated the concept off the Singapore-on-Thames, where they have the freedom to have very low corporate taxes. The problem is that on their expenditure side, their expenditure has got so high that I think they have been forced to reverse their path and go back up to 23 per cent in the corporate tax. So in a way, it’s some extent of failure on their strategy. But Ireland, the interesting thing about Ireland is that the low corporate tax has been so successful that the corporate tax revenues are exceeding all expectations nearly all the time.
For example, it’s just been reported this week that the corporate taxes up to the end of October produce 10 billion. 2 billion, more, 2 billion, more into the Irish Exchequer than they had predicted at the start of the year. So it’s an extraordinary sort of virtuous circle that Ireland is on.
(Geraldine) Padraic, just to lay out how it is in 2021 OECD countries, the average was at 31 per cent, and it’s now down to 21 per cent. However, in countries like Hungary and Lithuania. Lithuania is 15 per cent, Hungary is the lowest in Europe at 9 per cent. Why are they not getting half of the anger? Why go back to that? Because really we’re actually not doing such a cheap job. If Hungry is at 9 per cent.
(Padraic) Yeah, I think it’s fascinating. It’s a fascinating question. Because Hungary, as you say, has a corporate tax of 9 per cent, and if you look on their investment promotional websites, they are boasting: “9 per cent lowest corporate tax rate in the EU”. And to say, why, why is no one focusing on Hungry, and why are they picking on us? And it comes back to the reason that we’re too successful.
(Geraldine) And we have a history of that success.
(Padraic) Yeah. And now Hungary has got substantial international companies.
(Geraldine) And fantastic universities.
(Padraic) Yeah. I’m pretty familiar with it because I actually was there just after liberation in 1990. And I was with an Irish group within the ministries, post-liberation, developing their investment approach to strategy.
I visited Hungary for quite a number of years. And I was a president for a number of years, all the Irish Hungarian businesses association. So I’m straight familiar with them and through attractions as a country, right in the heart of all Europe and so much to own. They have a considerable fluster of international companies.
But your question it’s absolutely 100 per cent. Why is nobody even in Ireland, I’ve never seen in the Irish media, a single reference of the fact that Hungary boasts having the lowest corporate tax at 9 per cent? And the whole focus is on Ireland, and as I say, it comes back to that Ireland has been so successful.
Listen to the podcast about the global tax reform and Minister’s Pascal O’Donoghue persistence from minutes 15 to 23.
(Geraldine) So let’s talk about the global tax reforms that are happening and how we’re now going to move from our current 12.5 to what is predicted to be the 15. Given that there has been support, I know it hasn’t been legally enforced yet.
(Padraic) Yes, we get it. If you look at the evolution from the 10 per cent and 1981 went up two and a half per cent in 2003 to 12.5 per cent. And now, by 2023, it’s not today. It’s two years from now. That’s probably optimistic, and we are going up by another two and a half.
(Geraldine) So, it’s just been two and a half per cent, every 20 years on average. Think about that.
(Padraic) Exactly. There have been two steps of two and a half per cent since 1981. And I’ve absolutely no doubt that Ireland can handle this. The international investing community can handle it. And the way that Ireland and particularly the government Minister Pascal O’Donoghue managed to actually enhance Ireland’s reputation as a reliable partner.
(Geraldine) Just on a very small detail. But I think it’s wordy to reference the G7 were coming together to try and get a minimum of 15 per cent in agreement, Pascal O’Donoghoe interstage left. He went from being part of that group to saying, no, let’s do a maximum.
(Padraic) It was centred around the words at least that they had a draft was at least 15 per cent minimum global corporate tax. And he and the Department of Finance rightly were concerned about the term at least. At least could become from 15, just 20, 25.
(Geraldine) Become a new starting point, in other words, for everything to go north.
(Padraic) Exactly, and then against the background where the EU has been very aggressive in trying to get control of corporate taxes. So the outcome in terms of the fact that the global corporate tax will be 15 per cent is a hugely positive outcome for Ireland and for the government and the position that the government and Pascal O’Donoghue were taking and were seen to be taking during that period and the fact that they didn’t rush in and, and agreed on day one. They took a lot of stake in the Irish public arena and the media for the fact that Ireland is going to be an outlier, et cetera. And now it can be seen that their strategy actually did incredible success for Ireland.
(Geraldine) And for the OECD countries, a 139 will benefit from Ireland’s determination.
(Padraic) Yeah, and the fact that they agreed to the Irish modification. It was a huge plus for the whole strategy. But when you sign back and look at the strategy, it showed the international investment community that Ireland is going to fight for its low corporate tax and fight to the end. And very smartly use as leverage to get the significant change that the tax is 15 per cent not at least 15 per cent.
(Geraldine) Padraic, what would have been your thoughts on Minister Pascal O’Donoghue and the criticism that came from the Irish media generally, that we didn’t run into sign up and we held out?
(Padraic) There’s been a general sense for a number of years that anytime anybody, including, predictably the French have criticised the Irish 12.5 per cent tax, there’s always nervous Nellie attitude by the Irish media: “oh my god, what’s going to happen to us et cetera.
That really annoyed me. The sense that somehow we had to answer for something because we had low corporate tax. Whereas, in fact, perfectly entitled to have a low corporate tax. And as you’ve said earlier, other countries in Europe had lower taxes. And I think the argument made by Pascal O’Donoghue that smaller countries like Ireland where the tax competition was a legitimate tool for a small country like Ireland, to try and differentiate themselves from other countries.
And he’s made that argument said it’s legitimate with boundaries that we use that tool because if you look broadly at the whole harmonisation of Europe and how they have to harmonise everything, we’re still a country on the edge of Europe. So what lever do we have to encourage people that they shouldn’t be in the heartland at Dortmund or Dusseldorf of the heart of the market, that they should be in this island out here? What leverage do we have to compensate for what might be perceived as a disadvantage? The tax was one of the few that we had, and we’re perfectly entitled to stand up for it.
So I think the over-sense of, oh my god, and because we’re being criticised for the 12.5 per cent, I just found that ridiculous, to be honest. And the assertion by Minister O’Donoghue is perfectly legitimate and put that case to his international colleagues as absolutely correct. But his strategy of a key part of the audience for the Irish government and the Minister was the international business community who looked and said, how is Ireland going to react to this. Are they going to defend the 12.5 per cent, et cetera?
So what’s happened? They’ve seen that Ireland board the criticism initially that they weren’t going to sign up. In principal, Ireland said we are supportive of a minimum global corporate tax and made the case within the different arenas successfully and achieved the elimination of this at least word so that the minimum corporate is 15 per cent snd they were able to influence the OECD.
So overall, if you look at that key audience, what do they see? They see that Ireland fought for sustaining a low corporate tax, achieved a significant amendment so that it was 15 per cent not higher and is committed to maintaining it. So they have to see a country that wants to be consistent in its tax, wants to be predictable. And those are huge pluses for Ireland. And that’s the key audience that the Minister was focused on and successfully achieved. And all the reaction is supportive of the outcome by the international community of Ireland’s position.
(Geraldine) As citizens or consumers of media, we missed out on acknowledging steadfastness and determination because it was a political minefield.
(Padraic) We missed out on two bits. Missed out in fact, what his real audience was, which was the existing investors and hugely important to Ireland.
But the other was, they missed out on the real politics that a lot of the criticism in Ireland from politically was because of her success. Uh, and that there’s something wrong about Ireland having been so successful.
And that particularly has come from years from the French. Those are, I believe, misinterpreted or not even understood by large sections of the Irish media and particularly the lack of understanding of the realpolitik of the political attacks on Ireland and its corporate tax. It’s not so much about the corporate tax - it’s about our success in establishing these companies.
(Geraldine) So it was the covetousness of these countries.
(Padraic) That’s a key part of it. And I hear very few conversations in Ireland about it, and in the realpolitik part of the world, that’s the bottom line. And of course, to some extent, these countries now will get part of the tax taken under this regime of many of these companies who are based in Ireland. So they’ve got something of it.
Listen to the podcast about the Irish people and the criticism of the Irish media from minutes 23 to 33.
(Geraldine) Padraic, when we talk about why Ireland, there is many drivers and attractors, and one would be the English language. Now we’re the only English speaking country within the EU and all of the rest. But one of the items that I enjoyed your reference too, we often say, if you could just bottle it, the something that the Irish people have and Martin Shanahan the current IDA CEO quoted you as saying: “People are to Ireland, like champagne is to France and oil is to Texas.”
You really mean that, don’t you, Padraic, about the Irish people?
(Padraic) Well, that figured is probably one of the biggest changes that we made in the early eighties and the promotion of Ireland from financial incentives to the people and to emphasise that people were the key. Bear in mind that actually goes back to 1983, precisely as part of a major campaign, which we had. And the encouraging thing is that every day that went by that becomes the central issue is the quality of the people in Ireland. That’s a differentiating factor.
In a way, I might just come back and refer to the discussion on tax. Tax is important, but it only comes into play if you make profits, right? If you don’t make profits - the tax is irrelevant.
So if you look back on the long trail of all of this in the mid-fifties, when all this started on the tax regime, Ireland was a really agricultural country. How could it differentiate itself from the rotten telephone system, which basically was agriculture?
(Geraldine) Infrastructure was poor.
(Padraic) So it developed the unique selling point all below corporate tax, zero tax in exports, in UPS, right?
In a way, it served this purpose as a unique selling point. It’s no longer a unique selling point. Our unique selling point is our education, a good place to do business, consistent government support and corporate tax are somewhere in there, after it. But it’s no longer a unique attraction, but it served its time, and it’s still important. And that’s why you fight for it. You fight for it because we also want to have a consistency that we’re not going to suddenly change.
And that brings you to another really interesting point, that’s unique and the remarkable political support that we have today by all main political parties, including the Sinn Fein, for the corporate tax regime, we have for foreign companies and that is remarkable, given that we have relatively high personal taxes.
There is now an understanding within the country, generally in the public, that the country benefits from the low tax. Cause they can see the employment and they can see here increasingly the corporate tax is surging. Largely because of the multinationals. And the other remarkable thing - in a poll carried out by the Irish Times in October, people were asked, should the government maintain 12.5 per cent corporate tax. Fifty -nine per cent of the people said the government should retain the 12.5 per cent corporate tax. Now that is a remarkable reflection of the public support. It’s remarkable given all the pressures on people and said, with the personal tax, et cetera.
Now, and that’s a reflection of the evolution of the foreign companies, and the perception of people see that, in fact, they have been good citizens. They haven’t pulled up roots and gone away overnight, and that they’ve contributed to the country and employers. So that public and political solidarity that in itself is a big factor. But also again, to investors, they can see this country - they’re not going to be out with the government tomorrow and everything is going to be turned upside down.
(Geraldine) Yeah, it’s consistent.
(Padraic) Because it’s a big decision by a company to establish what they would regard as their European home in any country. If they pick Ireland, it’s a big thing. On the visit by secretary Yellen.
(Geraldine) What did that visit signify?
(Padraic) It signified the endorsement of Ireland’s approach.
And she said here, a corporate tax, you would not change Ireland’s state as one of the best places to do business in the world. It is very significant that she was in Ireland, and she says, “it is a two-way bridge that continues to benefit both countries”. And there’s a large Irish industrial presence in the U.S. also. Irish multinationals who are in the U.S. So that’s important, and she met the representatives of Intel and saw the other companies here who basically, she met them face-to-face, so she heard from them about the role Ireland play and their business.
So it’s hugely important that such a key figure, as the secretary, understands at firsthand that the role of Ireland in supporting U.S. companies be successful in Europe and also her awareness that we have our own multinationals in the U.S. that it also makes a good contribution to the U.S.
(Geraldine) It’s not often highlighted but the figures of employment rate created by American companies here is matched off by the Irish companies in the U.S. So we’re level around the employment figures, kudos to the Irish companies working abroad.
(Padraic) Yeah. That’s true. Talking earlier about the sort of attitude, this interpretation by the Irish media, all of what’s going on and RTE led some of its news bulletins when Ireland agreed to the 15 per cent. They used the word - quote, “Ireland had surrendered its 12.5 per cent”. I really found that absolutely extraordinary, as if we’d lost the battle and had failed. Whereas in reality, we had pulled in assuring that 15 per cent would be the minimum.
The word surrender spoke to a mindset that I saw this whole sense of Ireland should nearly shut and be afraid when people criticise our 12.5 per cent tax.
Nothing to apologise to anyone for. I couldn’t believe it. I heard this word Ireland has surrendered.
(Geraldine) Where’s green Jersey wearing by the media when it comes to Ireland Inc?
(Padraic) Yeah. And the other huge plus that the Minister achieved, real surprise I think to everybody, was that 12.5 per cent remains for all companies in Ireland that have a turnover of less than 750 million, which is the vast majority of them. So there are 160 thousand Irish companies today who will benefit from 12.5 per cent. They imply 1.8 million people, and their tax will remain 12.5 per cent. That was an extraordinary outcome because he had to get the European Union Commission to agree to that.
And they’ve been so aggressive against Ireland and so aggressive against our tax regime. I think it’s an extraordinary achievement to get the EU to sign off on the 12.5 per cent. So it means that the vast majority of the Irish companies they’re going to stay at the 12.5 per cent as long as the Irish government wants them to.
(Geraldine) I wonder, has this been thought out as well, that if you go beyond the 750 figure, even if you are a private company, your line items will be exposed regarding your sales, imports, headcount. A lot of this information is available, but your accountancy is out in public view. Is there any chance that will break down companies into more subsidiaries, and will there be possibilities of loophole shenanigans that can go on? The unintended consequences?
(Padraic) I imagine that they will be strong avoidance, but the other part of the corporate tax regime that is also significant and does have implications for Ireland is that for huge companies with 20 billion global turnovers, that the countries where they sell their products. They are going to be able to take a slice of the tax from them.
For example, if you have a company with 20 billion turnovers and you’re selling into France, and you’re making an extent greater than and 10 per cent, French will be able to take 25 per cent taxable profits from you. So this could affect. Because the international company in Ireland, the extent that they’re selling and they’ve turned over 20 billion or more was quite many of them have. They are selling into other European countries.
For example, they’re making, say, over 10 per cent margin. France and Belgium will be able to get a slice of their profits, which otherwise would’ve come to Ireland.
(Geraldine) It means taxation in the market where the sales are happening.
(Padraic) Yeah, and that’s a very serious, significant change in the way the whole taxation has traditionally been provided.
Now it’s almost zero attention being given to that in the public debate, but it’s a huge new principle.
(Geraldine) I think it’s fair and equitable.
(Padraic) Yeah, it is. And it’s partly designed to make these countries establish their own digital tax, right. The tax that big digital companies that we’re familiar with. So it’s partly designed to say, look, France and the UK, you don’t have to have your own digital tax. There’s going to be this internationally agreed system. And you’re going to get a slice of the profits, all of the Facebooks and the Googles in your country.
But make no mistake about it, profits that would have been booked in Ireland are now going to be pardoned subject tax taken by the UK, by the French, by the Germans, et cetera.
As I said, this very little attention be given to it, but we see how it works out. Initially, there are only about a hundred companies in the world that will be included in this that are 20 billion turnovers.
(Geraldine) With the substantial sales like that. So this is one of the key driving forces for the global tax reform and added to that then there is across the nations mismatching of tax regimes, and this is an effort to standardise. Would you see it that way, Padraic?
(Padraic) Yes, there was no question that everybody’s trying to optimise their affairs on their tax regime and benefit from whatever arrangements there are and between countries. Big companies have been able to optimise their tax regime, and where there are mismatches and gaps, it’s absolutely right to be clamped down on that. And that there’s a fair base of taxation, so forth. The underlying principle of all, this is absolutely right.
Listen to the podcast about the U.S. tax reform and the Apple business and tax havens from minutes 33 to 43.
(Geraldine) And there is always the challenge of taxing the multinational giants, such as Google, Apple, Facebook, Amazon, and Microsoft. The other item is the influence of the U.S. with Trump’s reform, which from asking for global intangible low tax income at 10.5 per cent and Biden, bringing that up to 21.
It is really amazing that we’re now in a place where Biden is supporting a global minimum corporation tax of 15 per cent. That also means that the giants, their tentacles in Ireland, are far more grounded and reassured. Would you agree?
(Padraic) It means that wherever they are, they’re going to have to end up paying 15 per cent. Even if they were in Ireland they would pay 12.5, they still will have to pay the 15 on the OACD rules.
So somebody else would get the revenue, not Ireland, but a big issue at the U.S. administration and president Briden’s proposals is what’s going to happen in the Congress because they have come to a conclusion and all of this. Now, hopefully, it’s an interest to Ireland certainly at this stage. That they support the 15 per cent and that Trump tax coexists with the OECD agreements.
(Geraldine) What do you project, Padraic, with your experience, will happen with Congress or may happen?
(Padraic) I just don’t know. It’s a very volatile situation. I think everybody hopes that, certainly, it will support the global minimal 15 per cent. I’d imagine that they will. I’d be very surprised that they don’t.
(Geraldine) Okay. And what about other big economies such as China and India?
(Padraic) They have indicated that they’re going to sign up but so much in the detail of what euphemistically called carve-outs, which is deals that are done without carving out sections of their economy.
For example, you take global 15 per cent tax applies to quote “taxable profits”. What’re taxable profits? How do you compute taxable profits? That’s a whole kind of warms.
But we don’t have time to get into it. So there’s a lot of detail, but the broad picture is good. Mostly it’s highly optimistic that all this will be in place by 2023 because it means that every country has to do whatever legally formalities to put this in place.
(Geraldine) Yes, and that was agreed in June, so we have a lead in two years to make it all happen.
(Padraic) It’s still a big ask.
(Geraldine) Certainly is. Going back to something that we mention there. Apple. I know it’s been a long, drawn-out discussion and debate, and we’re still not at the end of it because courts haven’t reached a decision.
Can you give us some comment on that, Padraic? Because I know that it isn’t just a commercial item when we talk about it, there’s a cultural aspect, but what was it like for you in your observation of reading the Apple case in 2015?
(Padraic) I find the Apple saga in Ireland the most depressing episode in my career or in the engagement in the world of foreign investment. I find it deeply depressing.
(Geraldine) Why so, Padraic? A lot of people are going — the cost the COVID. There’s an escrow with a huge fundal of 13 billion with penalties on top of it, and it’s growing. Why can’t we just trigger that lever and release that 15 billion?
(Padraic) I find it utterly depressing the frenzy to spend the 13 billion Apple money.
And it was depressing for a number of reasons. First of all, Apple has been here since 1980 — employs 6000 people in Cork, and contributed extremely well to Ireland. But the more fundamental issue was that the EU opportunistically cited that a tax ruling by the Irish revenue constituted to the state aid, and they had this dramatic press conference with commissioner vesting or, and they unveiled a spectacular 13.5 billion fine. There was a huge amount of theatrical about it.
But the basic issue from my point of view, as being in IDA in the past, was immediately jumping to the conclusion that the Irish revenue commissioners had done something wrong that they’d made a sweetheart deal with Apple. And what I found absolutely shocking was the idea that the Irish government would not support its own revenue commissioners in their decision-making and that they would go and grab the 13 billion rather than support the Irish revenue commissioners.
I just found that deeply shocking. And of course, what happened was, most people presumed that the EU were right, that the Irish revenue heads did the sweetheart deal and done the special deal because of the case of the EU saying that you have given favourable treatment to somebody and you haven’t given it to other people, that’s the basis of their case.
What happened was four years later, when they voted on the European Court, and people were tired and exhausted and almost forgotten about the Apple money, the European Court threw out every substantial argument by the EU Commissioner. There were three main arguments, all of them thrown out. So as of now, there is no decision that Apple got any selective aid from Ireland.
So the case has been struck out. What happens now? Because the EU can appeal, it’s easy to appeal. It can spin a note for another two years, right? So we’re going to have six years of this saga. But the fundamentals are, or as I said that the European Court found on all the cases that their revenue commissioners had not given a sweetheart deal and the Irish system was vindicated.
Now the fundamental issue, most reasonable people would see that something was wrong here? And what was wrong was not anything Ireland had done. It was the fact that there wasn’t a global tax regime in place so that Apple were able to minimise their tax worldwide by optimising where they paid tax. But it wasn’t because the Irish authorities twisted the rules to suit them. It was because of this lacuna in the international setup, which has now been remedied by the OECD and the tax regime.
(Geraldine) So Ireland isn’t a tax haven, as far as you’re concerned.
(Padraic) As far as the OECD is concerned, Ireland is not a tax haven. The head of the OECD attacks…
(Geraldine) They were some of the items that were thrown around at the time.
Also, it was just that this IP for a lot of these companies and the IP based BEPS tax tools led to figures where the companies were representing 25 per cent of Irish GDP at the time and were referred afterwards to leprechaun economics. I guess I’d like to take the opportunity today, Padraic, for us to rectify that misnomer that’s out there.
(Padraic) In the case of Apple, what the EU we’re making a big deal was that Apple globally paid a very low corporate tax. And that is true. But that reflected the gaps in the global tax system. Those gaps and lacuna are now in the new OECD agreement, and the15 per cent global minimum tax is designed to fix that. That’s not the fault of the Irish authorities, the revenue authorities were administrating the laws, and they found it. And that’s said, the European Court found that they had acted properly. Fundamentally, the case of the EU was absolutely thrown out.
It’s understandable that people were saying Apple doesn’t pay much tax. It’s a global issue.
(Geraldine) It is a global issue, but, Padraic, there’s the difference now between the modern tax haven versus the traditional one that we understand. Apple was seen to pay an effective tax rate of two and a half per cent rather than the headline rate of corporate tax at 12.5. That’s where the detail is lost. And I agree with you, it wasn’t the Irish government’s making, but that’s what had happened because profits were able to be channelled elsewhere. And as far as Ireland’s bank account is concerned, 2.5 per cent of Apple’s corporation tax was paid, which was the effect of the tax rate, rather than the headline one of 12.5 per cent.
(Padraic) One of the reasons why the headline tax rate is not paid in many cases is because we want to encourage research and development in Ireland, uh, and give them tax credits for doing research and development. On the one hand, people say, oh, they should be doing far more research in Ireland, and they should be doing in creating new software and products. Ireland has been successful in encouraging many of the companies through R&D incentives, patent incentives. So that in some cases then reduce the headline rate, and that’s okay, that’s in the national interest.
But come back to the tax haven, again for political reasons ceased to through the accusation at Ireland, that it is a tax haven. Ireland is so much removed from being a tax haven as against these islands, which have no substance. It has a quarter of a million people, in the foreign sector on almost half a million indirectly in the foreign industry. And the key arbitrary of what a tax haven is the OECD there.
They accepted arbitrators on global tax, and they’re clear that Ireland is not a tax haven and the director this year said Ireland is not a tax haven — it’s an investment hub. It’s an insult to all the people and the hundreds of thousands of people working in these medical devices and electronics and the biopharma industries.
(Geraldine) And yeah, I suppose the other thing that we forget about as well, and I’m coming from this from the small indigenous business sector about the tax payments, they are the luxury to be able to pay them at the end of the day, we’re all equalised by the amount of income tax that is paid from employment and employees, which is really the fabric of circulation in this country.
So I think we need to level it off in that sense. The corporation tax is only one aspect of the tax that is paid through these companies.
(Padraic) The international companies apart, from the direct employment they give, contribute something or order in cash 22 billion to Ireland’s economy, through their wages, through the materials they buy through the sub-supplies, et cetera.
So there’s a huge spinoff benefit. Everybody knows that everybody who supplies Intel or Apple with all kinds of services or maintenance or electrical, catering and all kinds, take a whole freight industry, transport industry in Ireland, that has such a specialised, fantastic industry that deliver products from Ireland to different locations in Europe within 24 hours to 48 hours. All of these brilliant industries that have grown up back off the foreign sector. So these alternative benefits are huge to the country.
Listen to the podcast about indigenous businesses, multinationals and industries dispersion throughout Ireland from minutes 43 to 56.
(Geraldine) You, at the time in your position, were hanging out with, influencing and talking to some very famous and infamous political leaders, and a lot of what we’ve discussed today, while it is commercial, is very political. What was the talk at the time from the government for his strategy for indigenous business?
(Padraic) First of all, I was head of the industrial development authority, and I was responsible for the indigenous industry.
(Geraldine) At that time, it wasn’t broken into IDA and Enterprise Ireland, so your remit covered both.
(Padraic) Yeah. So I would have spent more of my time, personally, on promoting, creating new encouragements.
If you look at the whole origin of the support for indigenous industries, there was a small industry initiative within the Department of Industry and Commerce. And when the new IDA was formed in 1970 became part of that.
So there was a special focus on that, then there was at each country level, there were the county development officers, which are now transformed into the Local Enterprise Office.
And then, when the IDA was separated, and Enterprise Ireland was established with a focus on indigenous industry. I think the innovative approach that Enterprise Ireland has had in not just in financial aspects, but on the whole advisory side, on exposing leaders of indigenous industries to the best thinking and education and thought processes and all kinds of development programs.
I can’t think of any country in the world actually that has a more progressive focus on indigenous industry than we have here in Ireland. And there’s, the evolution is off to venture capital industry. And I’ve been involved in that myself as a member of the current capital group for a number of years. And I chaired this, uh, startup on the early-stage equity fund.
One of the patterns in Ireland is that when a startup company become a success, I would say maybe eight times out of 10, they’re bought out by a larger group internationally. So that’s an interesting question as to whether that’s in the interests of Ireland, the long run, particularly at the present time when there’s so much capital actually globally available for development and more because returns on deposits are so low that there’s a huge amount of international equity capital that’s looking for higher returns. So if you’ve got an emerging Irish company, they made an offer. They actually can’t refuse in many cases. So the dream that maybe Irish people have of growing our own international companies, it’s difficult in the modern world to become part of international groups. As said, it’s a question very often Ireland will benefit from the expansion of the base in Ireland.
(Geraldine) Padraic, I hear your points on that very well, but there’s a sense of less than fair limelight share, and that is on the small businesses of Ireland. Ninety-nine per cent of businesses in Ireland are small. That’s an incredible figure. And these are the businesses that aren’t starting at the concept with an exit strategy in mind. They are the lifeline of villages, towns across Ireland, where they are maybe solo operators or their family businesses, and they’re not going to become the unicorns. What they are is a lifestyle business. What can be or what was done under your knowledge of history today, around sharing some care with those types of business?
(Padraic) I think you make a really valid distinction here. There are two different worlds here. There’s the world, all of the potential startup companies in the tech industry or in the medical device industry that actually from day one is thinking globally. I suppose the Collison brothers of the Stripe are the example here.
(Geraldine) And they’re not an Irish success story commercially. Stripe isn’t an Irish company - the Collison brothers are Irish.
(Padraic) But you see, in the modern world and most of these industries, to be successful, you have to be global. Right. And as they’ve done, you have to have a base in San Francisco or California or whatever. So the high-tech companies from day one think globally, as you well know. Then there is the other world of the business, who are serving the domestic market whether they’re in all our towns and villages and I am very familiar with them, they do benefit from the 12.5 for the corporate tax. That is if you make a profit.
(Geraldine) Exactly, as I said, paying corporate tax is a luxury.
(Padraic) And what I would say is that I think our bureaucracy is not very understanding all of the realities of life for the small business, cashflow et cetera. There is a whole layer of costs, some near rise on the small company of whether it’s from local authorities or the regulatory authorities or levies of one kind or another.
I still think there’s a suspicion in our bureaucracy of business. For example, I think almost every incentive scheme for business and industry is aimed at an indigenous industry that ministers of governments have introduced. By the time the commissioners put in the conditions, it nearly kills them off.
The most extreme example was some years ago when there was an entrepreneurial relief introduced by former Minister Michael Noonan. And it was so extreme as almost killing off anybody qualifying for it. And I think, in the Oireachtas, he himself introduced about six amendments to force it of the finance bill.
So, unfortunately, there is a kind of suspicion.
(Geraldine) It is evident in the tax regime around the self-employed or propriety director.
(Padraic) And it’s taken years to get a recognition that proprietary directors who guessed personal tax credits and the whole issue about PRSI and the employment that’s gone on for years, and there’s been no rationale for the disruption. So it’s been a slow process to actually get recognition of these realities. There’s still not a total view from the system of what impacts the whole effect of regulatory issues, higher standards, levees, just doing business, particularly for businesses that are looking at just the domestic market alone.
You see, that’s where if you have an export business or you’re in a new high-tech startup, you have a global market, which gives you much greater potential. I understand. I think I understand a lot of that.
(Geraldine) And, Padraic, there are examples across the country where the landing of an MNC — a multinational corporation actually livened the community. What about the dispersion of multinationals across Ireland? Is there enough happening that way? Are we still clustering and causing huge bottlenecks in bigger cities?
(Padraic) I come from a background - I’m native country Leitrim myself. And I’d been passionate about regional development all my career. I was involved in the first set of regional plans in the IDA, which actually succeeded in creating a cluster of industries that are right down through Letterkenny to Abbotts and the Abbeys, and Sligo Allergan to Westport to the med-tech companies in Galway and right down to Little Island in Ringaskiddy in Cork. We built a program initially with advanced factories trying to encourage those indices, which were successful. For example, Allergan, which employs, I think about a thousand people in Westport today, went there because we had the advanced factory being built in Westport as part of a delivery strategy.
There is now a strong commitment by the current IDA to regional, but it’s very difficult because a lot of the modern and digital type industries want to be in the bigger cities, the bigger towns because their employers want to work and be part of a pool of like-minded people. So it is difficult in that certain companies who just want to be in a city.
And that’s a force. That’s what the IDA is continually countering by building attractive advanced facilities in towns, Dundalk, or Sligo other areas.
(Geraldine) But Silicon Valley of one stage, while it is a hub and club and hive activity around technology now, that was a barn wasteland. If we were to do the same now, we could pick a county in the middle of Ireland and decide to create a Silicon Valley there where the clusters happening.
And I suppose technology is easy. This discussion would have had a different element to it if we were talking about it two years ago even. COVID has meant remote working is possible and certainly within the technology company. So what do you think is now the best response to that de-clustering that can happen in Ireland?
(Padraic) I think the longer-term effects of COVID-19 on the working patterns is still unclear as to how that’s going to shape up. Definitely hybrid working and the ability of people to be employed by somebody in Dublin, but work from their home in Sligo. That’s more acceptable than it was. But it is likely that we will end up with the form of a hybrid model, with more remote working. And the remote working hubs, which are in many locations around the country which actually provide proper high-quality hubs and are allowing people to work into regions in a way that wasn’t possible or wasn’t acceptable, maybe two years ago. So certainly, that has changed the landscape.
It’s a two-way street because equally remote working can be done by people outside Ireland. There’s always been a certain all of outsourcing, whether it is thorough Mumbai or other countries, and all companies have to figure out where this is going to work out. The balance between what works and wanting to save some time not commuting, but also wanting to collaborate with their colleagues and have discussions and creative discussions, which requires you to be together. How’s that going to work out? That is still a work in progress.
Everybody right now is trying to figure what that’s going to come up.
(Geraldine) Yes, the dust hasn’t completely settled on that one on that one.
Padraic, I’m handing you a magic wand, right for changing how things could be done or improved around the MNC committee and for change around indigenous?
(Padraic) With the MNC community, I think the main wish has to be, to really focus on the education system. A big step forward has been the formation of the department of higher education under Simon Harris and the evolution, for example, of the technological university.
But the continued focus and investment in education and particularly in the stems and the science and technology, engineering, mathematics. It sometimes feels that we are living on borrowed time because we’re way behind on mathematics and some of these aspects. But to me, that’s where if I had a magic wand, I’d focus almost entirely on education and improving the stem disciplines.
And I say the evolution of the technological universities, that’s a huge thing into the future. Let’s go back a little bit. We had our universities, then we had our regional colleges, which became institutes of technology. And these formed a key part of the attractions for industry and for foreign companies because they were practical oriented and they were flexible.
And for example, today, in Dundalk, they’re developing blockchain training and blockchain courses in response to the needs of PayPal and the other financial service companies. So that would be my wish there.
In relationship to indigenous industry, and I know this has been tried before, is to try and stop the burden of creeping bureaucracy on small business.
It’s a continuous struggle, but you can’t give up on it. And I’d love to, if I had one wish it be that when the Minister of Finance introduced the incentives for industry, whether it’s their enterprise investments, a scheme or other schemes for business that they actually prevent the Department of Finance from killing it off in the finance bill by putting in so many conditions that it becomes ineffective.
And the number of times I know that ministers of finance have gone up and thought that they were introducing a great incentive for business. And not realise that the details of the finance bill were actually negating it. And in some cases, these schemes have taken years and years to take out the negatives. Take shared options, for example, in Ireland.
(Geraldine) That’s not even fit for purpose right at the time it’s rolled out.
(Padraic) It’s ridiculous, but it reflects this mindset of suspicion that somebody is going to run away with the silverware unless the revenue sort of attacks them. No, but there’s a deep mindset there, and I wish the Minister of Finance would look at the details and take real ownership of the details of the finance bills.
(Geraldine) And for my observation, it would be a mindset that needs to applaud small businesses for being centres of employment or creation.
(Padraic) And it comes back to something you said earlier — there is still some sort of deep-seated suspicion of certain areas of the bureaucracy of business and enterprise, unfortunately.
