The Republic of Ireland’s low corporation tax rate of 12.5% has long been an attractive proposition for foreign investment, but recent comments from the US Treasury secretary have prompted concerns that the country may face significant challenges in the near future. Janet Yellen’s stance against a “global race to the bottom” in corporation tax has raised the possibility of global tax reforms that could ultimately jeopardize Ireland’s strategy of attracting tax-sensitive investment. However, for the time being, Ireland is reaping a bountiful harvest, with Finance Minister Michael McGrath predicting a budget surplus of €10bn ($12bn) this year, rising to €20bn ($24bn) by 2026. While the pandemic has resulted in more taxes, such as VAT, being collected, the real driver behind the country’s economic success is the significant increase in corporation tax paid by multinational companies. Last year alone, Ireland raised €22.6bn ($27bn) in corporation tax, which is a 182% increase from just five years ago. €12bn ($14bn) of that has been designated as a “windfall” from multinationals and therefore isn’t expected to last forever. The difficulty in defining how much of this corporation tax is a limited-time windfall has prompted caution about how to spend the money. One suggestion is a sovereign wealth fund to pre-fund a portion of the costs associated with demographic change, with the rest possibly being used for a series of pre-election giveaways.
