Over the course of the past year, the importance of foreign direct investment (FDI) to Ireland’s economic turnaround has been self-evident. Both the government and the IDA should be proud of their achievements. The wise decision on the generous grand-fathering period for the phasing out of the so-called “double Irish” tax holding structure also deserves praise.
It is my belief, however, that Ireland is now at an inflection point in terms of its attractiveness to international companies and financial institutions seeking a gateway to Europe and other international markets. Policymakers need to start thinking of the future.
With the abolition of the double Irish tax structure, the most pressing FDI policy issue is the development of an onshore tax offering that will allow both existing and prospective foreign direct investors to continue to achieve competitive effective tax rates relative to those achievable in competing jurisdictions.
At its simplest, the double Irish structure was an offshore intellectual property (IP) holding box. Since its abolition on 1 January 2015, therefore, Ireland no longer has a proven IP holding box for prospective investors. The most urgent issue is the speedy creation of a truly competitive onshore IP holding box.
If we can achieve such an onshore offering quickly, the potential benefits for Ireland are substantial. Every day we are without one, we will be at a significant disadvantage to our competitors.
There are also enormous opportunities for Ireland to broaden and deepen the range of international financial services activities conducted here, especially in investment funds, alternative financing, securitisation and bond issues, insurance, and financial technology services.
Realising these potential benefits is also going to require us to do much better in terms of our personal tax regime. Leaving aside the issue of personal tax rates in general, the reality is that since the effective abolition of the remittance basis of tax for employment income, Ireland has struggled to deliver a truly competitive proposition capable of attracting and retaining the best international talent.
Getting our FDI offering right will be as critical to Ireland’s future economic success as it has been to our economic survival.
While our government, our policymakers and especially the IDA have much to be proud of in terms of their FDI track record, competing for future FDI will require a much more sophisticated and enhanced tax offering.
It needs to be competitive and onshore and it needs to be finalised urgently. Time is of the essence.
This article originally appeared in The Sunday Times.