The Irish Tech Boom: a Jammy Success or a Banjaxed System?

By Avery S. Younis

Once home to the “Double Irish” tax loophole, Ireland houses well over 100,000 information, communication, and technology professionals.[1] Over the past two decades, the country has seen a drastic increase in U.S. tech-based companies moving operations to its country.[2] The biggest companies include Apple, Microsoft, Meta Platforms, Alphabet’s Google, X (Twitter), and Amazon.com.[3] Dublin alone is an international tech hub with companies such as TikTok, Zoom Video Communications, ServiceNow, Datadog, Toast, and 2K.[4] As a result, in 2022, the Irish government derived somewhere between $10 billion and $15 billion of revenue from what would have been collected instead by the U.S. “in a sane system.”[5] Corporate profits make up 17% of the Irish government’s tax revenue.[6] By comparison, the U.S. government derived only 5.3% of its revenue from taxes on profits.[7]

The move for many companies from the U.S. to Ireland is largely motivated by tax law.[8] It is estimated that between 1998 to 2018, U.S. businesses funneled $1.2 to $1.4 trillion in profits to low-tax jurisdictions via the complicated international loophole known as the Double Irish.[9] The Double Irish is a corporate tax optimization strategy requiring two Irish subsidiaries and the process of shifting profits to the country with lower taxes by exploiting Ireland’s tax legislation allowing multinationals to register profits at the location of their headquarters.[10] While this loophole was closed in 2020, many of the profits have not come back to the U.S., leading to windfalls in Ireland. Globally, efforts have been made to limit such tax avoidance by large, international businesses.[11] In 2021, 136 countries came together to set a global minimum tax rate of 15% on corporate profits and redirect tax revenue to countries where the products are actually sold or used.[12] Ireland has yet to implement the new tax rates, but is introducing legislation to begin implementation next year.[13] With the government’s overall dependence on corporate tax, the country fears that potential changes to the U.S. tax code and/or economic restrictions will cause it to suffer.[14] To mitigate any future adverse effects and best utilize the windfalls its been given, Ireland is setting up a sovereign-wealth fund.[15] This fund will receive 0.8% of annual economic output from 2024-2035.[16] This choice is motivated by many suggestions that growing a fund over time would be better than a short-term spending bonanza, if the goal is to produce long-term investment for the real economy.[17] According to the Irish Finance Minister, the “funds are vital to future-proof our economy.”[18] The new fund will help cover increased healthcare bills as Ireland is a nation facing one of the fastest rates of demographic change in Europe.[19]

Aside from Ireland’s concerns, the European Union has worries of its own: is Ireland too economically dependent on Big Tech to regulate it properly?[20] The European Data Protection Board, which oversees the Irish Data Protection Commission (DPC), has criticized the DPC.[21] Ireland has the primary responsibility for regulating tech across the EU when it comes to data protection.[22] The onus is on the DPC to police and stop the data free-for-all within and between these tech companies.[23] With so much of the country’s population being employed by the technology sector and profits contributing to 17% of Ireland’s economy, it makes sense that Irish authorities would want to defend such a vital industry.[24] In late September of this year, the Irish government posted job ads for two additional commissioners to lead the DPC.[25] These additional commissioners will face quite the challenge, walking into a regulatory body that has faced much criticism.[26] This year the DPC has worked upon cases and many major investigations leading to:

  • a $379 million fine for TikTok for failing to keep children’s data safe;
  • a $1.4 billion fine for Meta for unlawful data exports; and
  • a $410 million fine for Meta for failing to have a legal basis for tracking and profiling users for ad targeting.[27]

Still, the DPC has come under fire, with suggestions that fines should have been higher.[28] The DPC has been accused of “procedural blackmail,” and the Irish Civil Liberties Board has sued the DPC for inaction on a long-standing complaint against Google’s AdTech.[29]

Looking forward, advancing technology is set to provide even more challenges for Ireland and the EU. The DPC will need to consider how to regulate generative AI.[30] This month, Coinbase, the most trusted and secure crypto platform globally, has chosen Ireland as its EU MiCA entity location.[31] Pharmaceutical and medical companies continue to play into this otherwise, tech-dominated space in Ireland, with presence of companies like Pfizer and the establishment of Sterling Engineering’s EMEA headquarters in Galway City just this month.[32] Alongside Google’s AdTech case, other major cases such as the EU’s suit against Apple to pay $14 billion in Irish back taxes remain open.[33] The outcomes of these cases “will determine whether member states may continue to grant multinational substantial tax breaks in return for jobs and investments.”[34]

As a country of only five million people,[35] “Ireland has a significant opportunity to enhance its performance in innovation, digital and AI capabilities. This isn’t solely about being a hub for scientific innovation, but ensuring both companies and individuals can adapt to new technologies.”[36] To prevent itself from squandering this opportunity, Ireland will need to build a skilled workforce, budget carefully, and regulate strategically as it faces opposition from the EU and various critics.[37]

 

 

 

 

 

[1] See Paul Hannon, This Country Won the Global Tax Game, and Is Swimming in Money, Wall St. J. (Oct. 10, 2023), https://www.wsj.com/economy/global/this-country-won-the-global-tax-game-and-is-swimming-in-money-57c3c70; Margo Steines, 6 Top Tech Companies in Dublin, Built In (Sept. 25, 2023), https://builtin.com/articles/top-tech-companies-in-dublin.

[2] See Hannon, supra note 1.

[3] Id.; Natasha Lomas, Major Big Tech privacy watchdog in EU set to get two more commissioners soon, TechCrunch (Sept. 28, 2023), https://techcrunch.com/2023/09/28/dpc-commissioner-job-ad/.

[4] Steines, supra note 1,

[5] Hannon, supra note 1.

[6] Id.

[7] Id.

[8] See id.

[9] Id.

[10] Julia Schmalz, Double Irish (Ireland), Glob. Informality Project (2018), https://www.in-formality.com/wiki/index.php?title=Double_Irish_(Ireland).

[11] Hannon, supra note 1.

[12] Id.

[13] Id.

[14] See id.; Lionel Laurent, Ireland’s Economy Is Like a Billionaire Tech Bro, Wash. Post (Oct. 5, 2023), https://www.washingtonpost.com/business/energy/2023/10/05/ireland-s-economy-is-facing-a-turning-point-as-trade-and-tax-winds-change/3267f2e8-633c-11ee-b406-3ea724995806_story.html.

[15] See Hannon, supra note 1.

[16] Id.

[17] Laurent, supra note 13.

[18] Hannon, supra note 1.

[19] Id.

[20] Stephen Bear, Is Ireland too economically dependent on Big Tech to regulate it properly?, Marketplace (Jan. 31, 2023), https://www.marketplace.org/2023/01/31/ireland-big-tech-eu-data-protection-regulations/.

[21] Id.

[22] Id.

[23] Id.

[24] See id.; Hannon, supra note 1 (giving the 17% figure).

[25] Lomas, supra note 3.

[26] See id.

[27] Id.

[28] Id.

[29] Id.

[30] Lomas, supra note 3.

[31] Ronan Leonard, Coinbase Announces Ireland as its EU MiCA Entity Location, Irish Tech News (Oct. 19, 2023), https://irishtechnews.ie/coinbase-announces-ireland-as-its-eu-mica-entity-location/; MiCA stands for Markets in Crypto-Assets Regulation.

[32] Hannon, supra note 1; Sterling Engineering to open EMEA HQ in Galway, Med-Tech Innovation news (Oct. 17, 2023), https://www.med-technews.com/news/medtech-ireland/sterling-engineering-to-open-emea-hq-in-galway/; EMEA stands for Europe, the Middle East and Africa.

[33] Foo Yun Chee, EU seeks top court backing in $14 billion tax fight against Apple, Reuters (May 23, 2023), https://www.reuters.com/technology/eu-seeks-top-court-backing-14-billion-tax-fight-against-apple-2023-05-23/.

[34] Id.

[35] See Ireland Population 1950-2023, Macrotrends (2023), https://www.macrotrends.net/countries/IRL/ireland/population#:~:text=The%20current%20population%20of%20Ireland,a%200.82%25%20increase%20from%202020.

[36] Jenny Darmody, Budget 2024: Will Ireland fall behind in the deep-tech race?, Silicon Republic (Oct. 11, 2023), https://www.siliconrepublic.com/business/budget-2024-tech-ireland-digital-future.

[37] See id.

 

Image Source: https://www.irishtimes.com/business/technology/dublin-ranks-third-best-european-tech-city-of-the-future-1.4650993