Ireland is at an inflection point in terms of its offering to international companies and financial institutions and must act quickly to maintain its competitive advantage says Liam Quirke, Managing Partner at Matheson
Over the course of the last year or so we have seen how important Ireland’s FDI offering has been to our remarkable turnaround. Both the government and the IDA should be very proud of their achievements in this respect. The wise decision on the generous grand-fathering period for the phasing out of the so-called “double Irish” tax holding structure is also something for which the government deserves praise.
It is my belief however, that Ireland is at an inflection point in terms of its offering to international companies and financial institutions seeking a gateway to Europe and other international markets. And the big issue is where to from here?
Two years ago, Matheson commissioned The Economist Newspaper to carry out an analysis of the key factors affecting mobile foreign investment in Ireland. The important word here is “mobile”. Mobile investors are investors who have a choice as to where to invest. It is only by fully understanding and embracing the relevance of Ireland to such investors that we can put ourselves in a position to take a larger share of the one million jobs which they create every year.
Matheson is following up the initial Economist study with a series of more detailed analyses into those sectors which most use Ireland as their gateway to Europe and other international markets. The first of these detailed analyses focussed on the global asset management industry and was published last year.
The objective of these studies and analyses is to offer our public policy-makers independent data concerning the most important needs of those international allocators of capital which Ireland must meet better than our competitors if we are to continue to attract them.
With the abolition of the double Irish tax structure, the most pressing FDI policy issue now facing Ireland is the development of an onshore tax offering which 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. Our most urgent issue therefore 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. However, 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 offering. Leaving aside the issue of personal tax rates generally, the reality is that since the effective abolition of the remittance basis of tax for employment income, we have struggled to deliver a truly competitive offering 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. Doing so is going to require much more evidence-based strategies and decision making. It will require an environment in which business and government can engage in a meaningful way, especially in relation to international tax policy. It will also require more real consultation, not consultations with pre-determined outcomes.
Crucially, it will involve delivering on the much heralded “Roadmap for Ireland’s Tax Competitiveness”, especially speedy implementation of the so-called “Knowledge Development Box”. Above all, it will require no more surprises. Rule 101 of international investment holds that allocators of capital do not like surprises. Finally, it must be recognised and accepted that international allocators of capital will expect Ireland to staunchly defend the investments which they make here.
Whilst our government, our policy makers and especially the IDA have much to be proud of in terms of their FDI track record, when it comes to competing for FDI in the future, we are going to require a much more sophisticated and enhanced tax offering and it needs to be a competitive onshore tax offering. Further, time is of the essence!