Analysts question if Dublin’s reputation as a leading tech hub could be undermined by new 15% tax rate

Ten years ago Dublin was nicknamed Silicon Valley’s “home from home” with tech superstars including Mark Zuckerberg and Elon Musk queueing up to snap up office space, avail themselves of local Irish hospitality and low tax.

But while the decision of Google, Facebook, Yahoo, LinkedIn, eBay, Amazon and more recently TikTok to locate their European headquarters in the Irish capital helped cement its reputation as one of the region’s leading tech hubs, questions are now being asked about whether they will stay.

Earlier this month Ireland signed up to landmark reforms for a global minimum corporate tax rate of 15%, up from the current level of 12.5% set by Dublin, in the biggest shifts for the country’s tax system in almost 20 years.

Some analysts argued the nation’s economic model could be badly undermined, while the Irish finance minister, Paschal Donohoe, said earlier this year that up to €2bn (£1.7bn) a year in tax revenue could be lost by 2025. However, there are hopes the changes might not prove as existential as they first seem.

“In the short to medium term, no, there won’t be an exodus, the change from 12.5% to 15% is not that significant,” said Seamus Coffey, an economist at University College Cork and former chair of the Irish Fiscal Advisory Council.

Ireland had played hardball in global tax talks taking place between 140 countries at the OECD in Paris, following almost a decade of failure among world leaders to agree reforms that would equip the taxation regime for the digital age.

Dublin refused to join an accord earlier this year, and only relented earlier this month at the 11th hour of negotiations after securing a key concession – earlier plans calling for a minimum rate of “at least” 15% were dropped, giving the government more certainty that it would not be ratcheted higher in future.

However, the reality is that many big tech firms never paid the 12.5% headline rate set by Ireland in the first place.

A Bloomberg investigation in 2010 showed how Google had cut its overseas tax rate to just 2.4% using an aggressive avoidance scheme dubbed the “Double Irish, Dutch sandwich” to effectively shuffle revenues made across Europe offshore to places like Bermuda, where the tax rate was zero.

Those schemes were outlawed in 2015, giving companies five years’ notice to comply.

However, while such arrangements undoubtedly helped attract Google and Facebook to Ireland in the noughties, they were merely the latest in a wave of more than 1,500 foreign firms – 800 of them American – lured in by the low-tax ethos of the country’s Industrial Development Agency since its foundation in 1949.

Before them IBM, Intel, Pfizer and Apple were shown the red carpet. For at least a decade Allergan has been making the world’s supply of Botox in Westport, County Mayo, on the country’s windswept Atlantic coast.

“The low tax rate started in the 1960s at zero and then went to 10%,” said Coffey. “The point of it was never to generate corporate tax revenue, but to use relatively low corporate tax to attract the companies to set up in Ireland and let them build big factories and facilities. And then we have employment.”

There are other factors tempting in multinationals. Chinese-owned TikTok set up its Dublin HQ in 2018 long after the writing was on the wall for the tax avoidance loophole.

“Young companies focus on things that will either kill them or help them scale in the near future. Corporate tax isn’t one of them,” said Stephen McIntyre, former head of Twitter in Ireland and a partner in Frontline Ventures, a venture capital firm in Dublin and London set up to help US tech firms expand in Europe.

Joe Biden and the OECD want to promote this idea of competing on grounds other than tax, viewing the reforms as ending the “race to the bottom” between countries.