It is a great privilege to speak to you today at the American Chamber of Commerce Ireland Global Conference.
The past year has been extremely challenging for our, economy, society and citizens.
In this period, we have taken unprecedented steps to protect the health of our citizens, and I fully appreciate the difficulty this has brought to all sectors of our economy, with some overwhelmingly impacted, notably in hospitality and retail.
While these steps were necessary and difficult, the Government has recognised the need to ensure that we provide supports to individuals and businesses to provide a social and economic safety net through these difficult times.
The Economic Outlook
In my role as President of the Euro Group, I have been very conscious of the need for Governments in the European Union and beyond to work together to ensure that the global economy has been protected to the greatest extent possible through this period, but also to enable a sustainable and equitable recovery in the years ahead.
The EU remains fully focused on fighting the pandemic.
In Ireland and the EU more broadly, the pace of vaccinations is quickly picking up and this in turn helps confidence about the economic outlook.
We expect strong growth in the Euro Area of 4.3% in 2021 (and 4.4% in 2022) and a return to pre-pandemic levels of economic activity in the euro area next year.
Although uncertainty remains high, economic confidence is picking up strongly.
This is the result of the extraordinary level of support put in place by the EU and its Member States for citizens and businesses, protecting livelihoods and ensuring that our economies will bounce back quickly as restrictions are relaxed.
The importance of the multi-national sector in Ireland
As one of the most globalised economies in the world, multinational companies play an important role in our prosperity.
One third of multinationals in Ireland have had operations in the country for over 20 years, illustrating the longevity, resilience and commitment of these companies to Ireland, as well as the strategic role Ireland plays in global operations of these MNEs.
As Minister for Finance, I am fully conscious of the contribution of the multinational sector to the economy and to the Exchequer.
In 2020, multi-nationals contributed €11.8 billion in corporation tax receipts, and a similar amount was paid through employment taxes.
More importantly, I value the contribution of multi nationals in providing good jobs.
I believe that multi-nationals have been critical to Ireland’s development and growth, and equally that Ireland has delivered profits, innovation, and talent that has brought significant benefits to multi-nationals, particularly the US multinationals, who have invested here.
It is important to note that it is not one way traffic – Ireland is the 9th largest source of inward investment to the United States – over 110,000 people in the US are employed by Irish companies in over 1,000 locations across all 50 States.
We have worked hard in this country to ensure that we have an outward looking perspective and a stable, pro-business, pro-enterprise environment that allows for investment and innovation to succeed.
This is particularly relevant in the face of international competition and current unprecedented challenges including Brexit and COVID-19.
We are proud of the hard-won reputation Ireland has earned for developing and nurturing world-class talent.
Retaining and strengthening our reputation for business means that the Government is constantly monitoring and improving our offering in terms of attracting investment.
This includes increasing the availability of certain labour market skills, investing further in infrastructure, and enhancing our economy’s overall competitiveness.
Work is ongoing in those areas to ensure that our economy remains attractive to international investment.
The role of pharma, biotech and technology in responding to the Pandemic
It is timely to highlight the critical role that the pharma and biotech sectors are playing in providing a way out for society through the development and clinical testing of vaccines.
They have also proven essential in the optimisation of manufacturing and global supply chains to ensure that countries can roll-out vaccination programmes efficiently and effectively.
I am keenly aware that Irish based multi-nationals have played an important part in what is a global team effort.
It is important to recall also the critical role of this sector, and indeed also manufacturers of medical devices and equipment, in the treatment of Covid-19.
Over the past year, we have also seen the importance of technology in ensuring that many sectors of the economy have kept afloat in these extraordinarily difficult times.
Digitalisation and technological developments have also been critical for the economy and society over the period of pandemic.
We have seen how small businesses have been able to recalibrate business models using e-commerce solutions, offices turning overnight into a virtual work environment, and enabled governments to efficiently get timely supports directly to people and business.
According to an OECD report, Ireland is fifth in the world for the export of COVID-19 related products and services and 6th in the global market of countries responding best in terms of innovation to the pandemic.
This has been so crucial to the battle against Covid, and I am pleased that multi-nationals in Ireland have played a central role in this.
Discussions on reframing the international tax rules for the modern age
Ireland’s business tax regime has historically had a key role in our industrial policy as a means to attract and retain investment.
Our long-standing 12.5% Corporation Tax rate with a broad base has supported business decision-making by providing certainty and stability.
As many of you will be aware, we are at a critical juncture for the international corporate tax system.
The 139 countries represented in the OECD Inclusive Framework will seek to reach agreement in the coming months on a new sustainable approach to business taxation, against the background of ever-growing, and indeed accelerating, digitalisation of our economies.
We have seen the benefits of innovation, creativity and talent being focused to deal with a global challenge, and we must keep this in mind as we consider reframing the international tax rules.
We need to ensure that tax systems not only continue to support research and development, but also provide the certainty and stability, for critical investment decisions to be made into the future, which will, as we have seen during the pandemic, have benefits for all of society.
Ireland has played its part in contributing to the modernisation of the international tax system in recent years, and we will continue to do so.
While the current discussions are progressing there are many outstanding issues to be resolved, but we do expect that there will be an agreement this year.
Last month my Department hosted a virtual International Tax Seminar which I believe was a timely opportunity to explore these issues with policy makers and business representatives.
I also took the opportunity to set out my thinking on what any such agreement should look like and what are the factors that need to be considered in arriving at a solution.
Ireland has indicated an openness to proposals on a reallocation of a certain proportion of profits to the jurisdiction of consumers which could address the specific tax challenges of digitalisation.
However, I have had reservations about a high minimum effective tax rate on the basis that it could be a step towards global tax harmonisation rather than addressing aggressive tax planning.
We need to ensure that any international agreement gives sufficient regard to those countries that consciously decide to follow a substance-based industrial policy centred on being small but open for investment.
I believe that small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries.
At the same time, I fully accept that there needs to be clear boundaries to ensure any competition is fair and sustainable.
This is in all our interests.
In stressing this point, we must recall that, today, we have far more robust international tax rules and safeguards to prevent abuse, arbitrage, base erosion and profit shifting than existed a decade ago.
I acknowledged the associated compliance burden these rules have introduced for multinational companies, however, I trust that an OECD agreement can bring stability to this framework.
I firmly believe that an agreement can be reached and I will work constructively towards such an agreement.
Any agreement should be grounded in guiding principles, bearing in mind that whatever is agreed at the OECD will need to be underpinned in the European Union by Directives, which will be binding on Member States.
I recognise that agreement on these proposals will have a cost for the Irish Exchequer, which is estimated to be at around 20% of our corporate tax revenues.
Yet I believe that we need to have certainty and stability globally, and reframing the international tax rules for the modern age is an important part of this.
There are risks in an agreement, but the risks may be greater with continued uncertainty and instability if there is no agreement.
Looking ahead
When agreement is reached at the OECD, there will be a new landscape, and we will all need to adapt to it.
And Ireland will.
We will remain competitive – we will ensure that we continue to play to our traditional strengths.
We will continue to have a forward-looking stable business environment.
We will act as that bridge from the US to the European Union.
Ireland will remain agile and competitive, and, importantly, we will continue to invest in an educated, adaptable and dynamic workforce – a workforce that has consistently delivered innovation, profitability and stability over many decades for businesses that have taken the strategic decision to build a substantial presence here in Ireland.
I can ensure you that we will not be complacent and we will be proactive in meeting the challenges and realising the opportunities.
With the right collaboration between industry and Government, we can harness the next wave of innovation while sustaining – and growing – the high levels of investment and profitability we have seen over several decades, to the benefit of investors and the people of Ireland alike.
Thank you very much.
ENDS