Saturday, October 09, 2021

Tax reforms and challenges for the Irish economy in 2022 and beyond

The Irish Government's decision to sign on to the OECD-G20 international tax reform package which is expected to be approved at the end of October at a summit in Rome may cost more than the estimate of €2bn annually in Irish corporation tax receipts, that has been suggested. It assumes that the €20bn in tax windfalls in 2015-2020 resulting from Apple and other big US companies allocating some of their intellectual property to Ireland, will continue.

The Double Irish tax dodge has ended and other shifted profits that have been diverted to Ireland and taxed, may over time be a problem for the Irish Exchequer.

These changes will happen at a time when there is pressure to raise public spending in several areas.

Irish finance minister's October 2021 statement and a statement from the OECD.

Only 12% of the sales of American majority-owned foreign affiliates go to the United States while local sales are almost 60%. The rest go to other foreign affiliates.

It remains to be seen how more honest reporting in big countries in respect of reported profits will impact decisions.

Last April the US Treasury named Bermuda, the Caymans, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland as the top 7 corporate tax havens. Their share of US multinational corporation foreign profits has risen from almost 30% in 2000 to over 60% in 2019.

The economy also has several weaknesses that have been shielded by the focus on FDI (foreign direct investment).

Ireland has few world-class companies and it has a small indigenous exports base.

Denmark, another small economy in Western Europe, is a knowledge economy with more than two-thirds of goods and services exports coming from Danish-owned firms. In 2020 Irish-owned firms accounted for 9% of Irish exports.

Denmark's consumer expenditure index was 40% above the EU average in 2020 and Ireland was second at 36% above.

In 2020 Ireland's standard of living per capita was 13th in the EU27 ranking. Among the 31 advanced (defined by the International Monetary Fund: IMF) / rich countries, of the 38 member Organisation for Economic Cooperation and Development (OECD) Ireland had the 19th ranking for a Household net adjusted disposable income per capita.

The poor occupational pension coverage of the Irish private-sector workforce is also an unaccounted factor in the standard of living.

Irish standard of living per capita at 13th in EU27 and 19th among rich OECD countries

Switzerland and Sweden head a 2021 global ranking of innovation countries and Denmark has the 9th ranking. Ireland has the 19th ranking but the Irish data are massively distorted by foreign multinationals.

Contribution to the Irish economy

Both Irish-owned and foreign-owned firms, mainly American, each directly spent €27bn in the Irish economy in 2019.

Irish-owned firms' biggest proportion of the expenditure was on Irish materials. The breakdown was €8.7bn on payroll, €12.2bn on Irish raw materials and €6.1bn on Irish services.

Foreign firms spent €15.7bn on payroll, €3.6bn on materials and €8.0bn on services purchased in Ireland.

Irish Food and Drink firms spent 79% and 83% respectively on materials and services while the foreign chemical firms' ratios were 5.7%for materials and 5.5% for services.

In Chemicals and related products (custom tracked data) in 2020 exports were valued at €106bn and imports €21bn while Medical and Pharmaceutical Products data were €62bn and €8bn.

This indicates massive profits shifting.

In addition, there was a net €59bn added to Irish exports in 2020 that reflected fake overseas processing mainly involving Apple and Big Pharma firms that allocated intellectual property (IP) to Ireland.

There is a fiction that Ireland exports iPhones to China!


In 2020 total employment in Irish-based exporting firms that received support from Irish government enterprise agencies amounted to 485,903 including 46,521 part-time and temporary staff.

This total was almost 21% of the 2.353m in employment in March 2020 before the impact of Covid-19 on jobs.

The full-time ratio of exporting firms to 1.591m full time-employees in the economy in Q1 2020 was 28% ─ 16% for foreign-owned firms and 12% for Irish-owned firms.

The Central Statistics Office (CSO) has estimated that a total of 383,000 were employed in FDI (foreign direct investment firms), including retail and domestic banking in 2018. That was 17% of total employment in December 2018.

Total permanent, full-time employment in agency-assisted companies operating in the Industrial and Services sectors amounted to 439,382 in 2020.

Total permanent, full-time employment among Irish-owned companies amounted to 192,187 in 2020. This was the tenth year of positive employment growth for Irish-owned firms. Irish-owned companies accounted for 43.7% of total full-time employment in agency-assisted firms in 2020 compared with a 47.3% share in 2011. Permanent full-time employment in Irish-owned firms increased by 58,040 or 43.3% between 2011 and 2020.

Among foreign-owned companies, total permanent, full-time employment amounted to 247,195. Permanent full-time employment in foreign-owned firms stood at 149,697 in 2011 and increased by 65.1% or 97,498 jobs by 2020.

2011 was a low point during the economic recession.


Irish exports were valued at €489bn in 2020. Custom-tracked merchandise exports were valued at €161bn compared with €238bn in the International Accounts. The trade balance was €28.6bn.

Services exports amounted to €230bn with Computer services at €132bn (think of firms such as Google, Microsoft and Facebook) or 57% of the total.

According to Enterprise Ireland, the public agency for mainly supporting indigenous firms, exports in 2020 were at €25.5bn. Adding inward tourism and transport based on 2019 gives a total of €40bn or 19% of Modified GNI* (Gross National Income) which strips out most of the main multinational distortions in the National Accounts.

Exports to the other 18 countries of the Euro Area were valued at €5.85bn ─ the total population is over 340m and there have been no foreign exchange challenges in the last two decades.

Last year based on 2017 data it was estimated that Irish employer SMEs (small and medium-sized firms) with at least 1 employee had an export ratio of 7.5% compared with Denmark's 21%.

The Irish export firm count in 2019 found an extra 2,000 exporters to give a total of 10,800. The export ratio was 9% compared with Denmark's 21%.

Denmarks 10-49 employee firms total 6,314 vs. 2,731 for Ireland. At 50-249, the totals are 1,977 and 924.

SME data includes foreign-owned firms.

The OECD in a 2019 report on entrepreneurship in Ireland said that micro-enterprises (employing less than 10 people) represented around 92.4% of all Irish businesses, slightly above the OECD average of 90%, and more than in other small open economies, such as Austria, Denmark and New Zealand. Ireland’s proportion of medium-sized firms (50-249 employees) was a little above 1% of total enterprises; lower than the OECD average of 1.5%, and more than four times smaller than the share in Switzerland (4.41% of total enterprises), for example. This possibly reflects limited opportunities for Irish micro-enterprises to grow.

Research and development

US multinational firms spend about 84% of their R&D budgets in the United States.

In 2018 they reported that Ireland was 7th in the world for R&D spending but in that year Ireland was the most profitable country in the world for US MNEs!

The data are not reliable as significant business R&D is not carried out in Ireland.

The estimated Irish business expenditure on R&D was €3.4bn in 2020 and the foreign firms accounted for over 70% of the total.

Of the €978m expenditure by Irish owned firms, Kerry Group spent about €308m (some of that spend may have been made abroad); AIB Bank €252m; Bank of Ireland 223m and the next biggest was Glanbia at €36m.

The Central Statistics Office (CSO) confirmed to me this week that Irish ownership includes mainly American redomiciled firms!

We so easily fool ourselves.

The typical route for an Irish tech startup with venture capital backing and international potential is to be sold to an American firm!

We can be proud of Stripe but it was created in the US.

In 2021 there were 3 Irish firms among the FT's 1000 European fastest-growing companies.

One of the 3 was subsequently acquired by an American firm.

Ireland had 4 firms in the EU Scoreboard of the top global R&D business spenders in 2019: Kerry Group (food) was at rank 457 and Glanbia (food) at rank 2,467. The other 2 were AIB Bank and Bank of Ireland (24 of the 28 "Irish" firms in the chart here were mainly US firms that are Irish for tax purposes and I added them to the US total.)

By comparison, Denmark had 32 firms in the rankings while the third and fourth-biggest EU economies by GDP, Italy and Spain, had unimpressive totals of 24 and 14 respectively.

Irish employer entrepreneurship

Ireland and Belgium have the lowest rates for employer (with at least 1 employee) startups among mainly advanced countries of the OECD.

In 2017 the Irish enterprise birth rate was 4.2% and the death rate was 5.10%.

2018 OECD data show that the employer enterprise birth rate for Denmark was 11.4% and the death rate was 1.6%. Belgium had a rate of employer firm births at 3.9% and there was no data for deaths. 

The poor state of entrepreneurship in Ireland


In the first two decades of the current century, the populations of the Netherlands and Denmark grew by 8 and 9% respectively; Sweden's population grew 14% and Switzerland's expanded 23%. The Irish population grew by 29%...

Ireland's FDI over-dependence and surging population