The longevity of many multinational companies in Ireland, and indeed Cork, is a timely reminder of our ability to adapt to change and a cause for optimism at a time of global uncertainly notes Helen Sleator, Tax Director in KPMG in Cork.
Helen works with many multinationals in the region and witnesses the continuing vibrant growth of tech/cyber and pharma/biopharma clusters first hand in Cork. IDA statistics indicate that over 150 overseas companies have operations in Cork, including up to 50 global technology companies and 8 of the top 10 global pharmaceutical companies.
Our economic strategy to attract Foreign Direct Investment (FDI) into Ireland has been very successful over the years and we must not forget the significant direct and indirect impact it has on the local economy.
In 2018, total corporation tax revenues were €10.4bn, representing nearly 20% of total tax revenues. Of this, 45%, nearly €5bn, came from 10 companies with a high proportion from a small number of multinational companies. This does not include any personal taxes paid by the employees of these companies, which in 2019, amounted to 230,000 directly employed by multinationals.
“Even in the midst of the recession, foreign capital continued to flow into Ireland - between 2009 and 2013, €125 billion of foreign direct investment (FDI) continued into Ireland. FDI also has a knock-on effect in the local economy through use of local services such as hotels, restaurants, maintenance contracts, construction and not forgetting the multitude of service providers like myself,” she adds.
The list of positives goes on, with the IDA research showing that for every 10 jobs created by FDI in Ireland, 8 more positions are generated in the wider economy. Many of the multinationals in Cork have been here for decades - Pfizer, Pepsi, GSK, Eli Lilly, Apple, to name but a few. “One of the reasons for the continued commitment to Cork is the positive business environment, including our transparent tax regime and keeping our 12.5% corporate tax rate unchanged.”
Ireland’s competitive and stable tax rate gives certainty to companies and the people that work in them, Helen points out. We have been successful to date but change is on the way. “While it is an old truism that only two things in life are certain - death and taxes - change should also be added to that maxim from 2020.”
The international tax world is changing - the OECD BEPS project was one of the first initiatives undertaken to review tax planning strategies that exploit tax rules in different jurisdictions to shift profits to low tax jurisdictions. “The impetus for change has been driven by a number of different factors, the primary one being the significant changes to the way we do business in the digital age.” Many companies can now do business virtually without having a physical location in country, resulting in many countries looking for their fair share of the tax pie.
“When President Trump announced US Tax Reform in late 2017, the plan was to attract manufacturing companies back to the US - many in Cork feared the worst. However, since that announcement, many of the US companies have, in fact, announced further investment.”
In addition, many companies have re-located to Ireland as part of their Brexit plans to enable them continue to trade into the EU. “Furthermore, we are already seeing many companies adapting to changes by choosing Ireland as the location for valuable IP, which further bolsters substance and functions carried on in Ireland.”
Commentators have suggested that Ireland may be worried about the potential tax changes on the way, citing the OECD’s new BEPS 2.0 project specifically focusing on digital businesses and companies paying their fair share of tax. “To date, payment of tax is largely based on the location of functions, assets and assumption of risk,” says Helen. “The ‘new rules’ are proposing to tax companies where the largest markets are or where customers are based. This is a fundamental change to how tax is calculated and is likely to affect all countries, not just Ireland.”
A second part of the BEPS 2.0 proposal is the introduction of a ‘minimum tax’ - an area where Ireland may have cause for concern, she believes. “We have committed to the long standing 12.5% rate of tax and a competitive R&D tax credit regime - the R&D tax credit is a key tax incentive for us and attracts many companies doing good research and innovation work. We expect to know more about these plans at the end of the year and the OECD plans to finalise by the end of 2020. These will be significant changes for companies and no different to any other changes, we will have to adapt.”
As a small open economy, Ireland is accustomed to battling external challenges. “Companies are constantly adjusting to changing markets - it is part and parcel of doing business. For example, in the early 1980s computer companies were mainly focused on making hardware, and then, due to seismic change in the IT sector, the focus moved to software development and other areas such as artificial intelligence. As Charles Darwin said, it is not the strongest of the species that survive, nor the most intelligent, but those most responsive to change.”
While Helen does predict significant change on the way, she does expect that overseas investment into Ireland will continue: “The future is bright, with our track record of adapting and succeeding in a global landscape, I think that we’re ready for the opportunities and challenges ahead whether they’re tax or non-tax related.”
“Ireland has transformed itself over the decades from a primarily rural economy to a dynamic, business friendly environment that is perfect for companies to set up in. Cork is a poster child of this success - with a huge level of foreign direct investment and a buoyant local enterprise culture driving strong growth for the city. So now is a good time to take stock” says Lorraine Sammon, an Audit Partner with KPMG who services a range of clients at various stages of growth, including start-ups, Irish companies expanding internationally and multinational companies.
“As we look to achieve our growth plans over the coming years, it is vital that we ensure that we continue to have a good story to tell on why businesses should locate in Cork – both the city and the county. Much is made of Ireland’s tax rate – but that is just one pillar of Ireland’s attractiveness as a location to do business in. Other factors – such as infrastructure and housing are also critical – and with significant projected population growth, we will need to deliver on these in order to ensure we can continue to successfully compete in an increasingly mobile FDI market”.
Lorraine points to the palpable sense of opportunity and optimism in Cork, with cranes dotting the skyline and underlining significant growth ambitions. “The city is on track to be the fastest growing in Ireland for the next 20 years, with population growth of at least 125,000 people in the city alone, and projections of 150,000 in the county. The key to sustaining this growth will be ensuring that we continue to maintain and enhance all the fundamentals that have made Cork a hub for overseas companies in the past.”
Cork’s success to date has been underpinned by operating in a unique environment - a place where business fundamentals are bolstered by those ‘around the edges’ additions that are becoming more and more a part of the decision for many companies when they decide where to invest. “Cork - city and county - can offer easy access to great schools and universities, commute times of 30 minutes or less for over 60% of the labour market, a young workforce and, importantly, a really attractive place to live in terms of areas of natural beauty, great culture, a buzzing food scene and friendly, welcoming local communities.”
It will also be key that the IDA’s new strategy for 2019-2024 recognises the capacity and capability within the South-West region.
All of this feeds into what the IDA term ‘placemaking’ - a factor Cork has in abundance, and which currently gives it a natural competitive advantage in respect of foreign direct investment.
“As we look to deliver on the growth ambitions for the region as part of the 2040 plan, we need to ensure that we continue to have this great story to tell. We should draw on experiences - positive and negative - from other cities in the world that experienced significant population growth in a narrow period and ensure that we are getting the fundamentals right in order to avoid any of the pitfalls of this growth. It will be key that the IDA’s new strategy for 2019-2024 recognises the capacity and capability within the South-West region. Linked to this – all strategies for the future need to be cognisant of the fact that the way we are working now – and the way we are likely to work in 20 years time – are vastly different. At a minimum, technology will allow more remote working and flexible practices and the types of roles are going to change – and these factors have a direct impact on both how we attract business to the region and the infrastructure that we put in place to support these businesses.”
The year-on-year growth in pace of new housing and the announcements for new apartment building within the city are to be welcomed – and will all help to ensure we realise our growth ambitions. “Infrastructure spend is also critical - and the 2040 plan outlines a number of strategic projects that we need to ensure are completed in order to allow for our overall growth and success.”
Championing areas outside of the city should also be applauded, as evidenced by the success of Ludgate in Skibbereen in driving positive economic and social change for a rural area in West Cork. “While this was driven by the private sector initially, as technology continues to develop at a rapid rate, enterprises such as Ludgate, where we challenge the rural/urban model, should continue to be fostered and encouraged by both the private sector and the State.”
Most critically, Cork has a strong entrepreneurial scene which is vital to the continued success of the region, Lorraine believes.
“While we have a strong reliance on multinationals, the IDA reported loss of 35,000 FDI jobs in Ireland in 2008 and 2009 during the global financial crisis continues to act as a caution on ensuring that our development is balanced across both FDI and Irish enterprise. Thankfully, this sector is thriving. In the first 9 month of the year some 1,498 start-ups were registered in Cork, 5 new companies a day. Add this to the successes of home-grown companies such as Teamwork, Voxpro, Carbery and Spearline, to name but a few, who operate at a global level and are a huge contributor of employment and innovation - in both the City and the county – you get a sense of the activity in the indigenous space. As these companies continue to scale globally, ‘placemaking’ and ensuring that Cork remains a great place to work and live, will be as important for these companies as it is in attracting overseas companies.”
This article first appeared in The Irish Examiner and is reproduced here with their kind permission.