Mixed Forecasts For Irish Economy
When it comes to economic and tax developments, Ireland doesn’t do half measures. Most countries are accustomed to riding the ups and downs of the economic cycle, but Ireland has made the experience something of a rollercoaster, from the roaring Celtic Tiger economy of the 1990s and 2000s, to the country’s near-bankruptcy at the nadir of the global financial crisis when, at one point, the Government reported a budget deficit in excess of 30 percen of GDPt.
You might have thought that this stomach-churning ride through boom and bust might have tempered ambitions and expectations in Ireland. But not a bit of it. In 2015, GDP was estimated to have grown by a massive 26 percent, although that figure was, it turned out, greatly distorted by a few large assets transfers connected to corporate inversions by US multinationals.
Nevertheless, the economy has still been growing in the ball park of five percent, a level which most developed economies can only dream of. And in another indication of how Ireland doesn’t do things by halves, in 2016 it attracted in excess of 12 percent of all US foreign direct investment in Europe, despite representing only one percent of the European economy, says the American Chamber of Commerce in Ireland.
But, could all this be about to change in an equally spectacular way? Corporate tax reform in the United States is likely to be a game-changer for global investment flows, even though nobody is quite sure how things will change, at least not yet. Then there is BEPS – a project designed to neutralize the tax advantages of the Irelands of this world. And while Ireland appears to have suffered no adverse consequences yet at the hands of international BEPS measures, another tax risk has just appeared on the horizon in the form of the very real prospect of new taxes on digital companies, many of which report their income in the Republic. Have I mentioned the proposed EU common consolidated corporate tax base yet? Well you can add that to the list of tax threats then, just for good measure.
It doesn’t stop there either. Ireland is also uniquely exposed to Brexit by virtue of its close trading links to the United Kingdom and the presence of a land border with the UK separating the Republic from Northern Ireland. With the expectation that Brexit will be towards the harder end of the exit spectrum, a result which could throw up new barriers to trade between Ireland and the UK, Irish businesses are growing increasingly concerned about future trading conditions, which sooner or later may translate into reduced economic confidence.
Judging by Ireland’s recent economic extremes, this is not a good omen. Not that I’m calling the likelihood of another massive recession here; if Brexit has taught the world anything, it is that economic forecasting is a hazardous occupation, especially if you value your reputation.
Indeed, on the face of it, Ireland’s economic fundamentals remain sound, propped up by its unwavering commitment to its 12.5 percent corporate tax, and its political stability and legal predictably – favorable characteristics not always shared with Ireland’s competitors. And this suggests that investors aren’t about to desert Ireland en masse any time soon.
Still, it’s hard to escape the conclusion that there are storm clouds on Ireland’s economic horizon. And it remains to be seen what the Government can do to navigate through them unscathed.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look