Ireland Attracts Multinational Company Investment

by Robin Pilgrim, LawandTax-News, London

13 October 2009

Ireland has seen a surge of multinational companies (MNCs) setting up there to take advantage of its tax-friendly status – Shire Pharmaceuticals, WPP, Hendersons, UBM, Ingersoll Rand, Accenture, and James Hardie. But the Obama administration said in May that it was not pleased with the way the tax laws in Ireland, the Netherlands and Bermuda assist US companies to pay less tax legally in the US.

Microsoft announced recently that its first-ever non-US megadata center is to be located in Ireland at a cost of USD500m. Amid heavy competition, Dublin was the location of choice for Facebook’s European Center. Technology, IP, pharmaceuticals and the medical device sectors figure highly in the expansion plans, with companies such as Colgate-Palmolive Boston Scientific adding significantly to existing investments. HP, PayPal, Helsinn, Hovione, and Pfizer are also establishing new R&D projects in Ireland.

Tax considerations play an important part in these investment decisions. A low 12.5% corporate tax rate is applied to companies with a physical presence in Ireland. Exemption from capital gains on the disposal of trading subsidiaries in the EU and created under almost all the 46 or more double taxation treaties currently in effect make Ireland increasingly attractive as a holding company hub; the same treaties most frequently provide for no additional tax on dividends paid into Ireland, and no outward bound withholding taxes on dividends or interest.

Tax credits for research and development (R&D) expenditure are sometimes available and these were increased to 25% as of January 1, 2009. The credit is off-settable against the corporation tax liability of the accounting period in which the R&D expenditure is incurred with the possibility of carrying forward unused portions to future tax years.

Ireland has not legislated to regulate the transfer pricing policies of its businesses. Its tax-friendly ethos always works towards reducing red tape and there is no Controlled Foreign Company legislation that might seek to allocate Irish taxation on foreign subsidiaries. Yet Ireland has always cooperated fully with international bodies such as the OECD in squaring its tax policies with international standards.

However, such is the sensitivity of the major nations to so-called tax havens that foreign tax authorities such as those in the UK and the USA may become extra vigilant when confronted with major holding company presences in Ireland, especially as far as transfer pricing issues are concerned. The Irish Times has recently reported that US software group Adobe Systems had been subjected to a USD312m tax charge after a tax examination which the report implied had emanated from the American IRS, quoting an SEC filing which stated that "examinations are expected to focus on inter-company transfer pricing practices as well as other matters."

UK newspaper The Daily Telegraph reported that the major UK insurance firm RSA abandoned plans to set up an Irish holding company for its European reinsurance business for tax reasons after "consultations with the UK HMRC." On the other hand, the benefits of setting up reinsurance holding companies in Dublin influenced Bermuda's Everest to set up a reinsurance company in Dublin last August for its European non-life business.

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