July 4th traditionally sees an outbreak of celebration about Ireland\u2019s economic ties with America. If talk of \u201cIreland Inc\u201d makes you queasy, this is the annual peak. <\/p>\n
Timely, then, that on the eve of this, the latest tax<\/a> figures showed that Ireland was in line for another strong year of corporate tax<\/a> revenues, the vast bulk of them from giant US<\/a> firms with operations here. It is the continuation of a story which dates back more than a decade \u2013 a transatlantic corporate embrace on which Ireland is now hugely reliant. <\/p>\n More than \u20ac35 billion in corporation tax is likely to be paid to the Irish exchequer this year, enough to pretty much cover the entire health budget and the majority of education spending for 2026. No surprise, then, that a few tax tweaks in October\u2019s budget will again be aimed at keeping these big taxpayers onside \u2013 sorry, I meant of course, underpin Ireland\u2019s competitiveness. <\/p>\n And the extraordinary revenues will have another budgetary impact. A significant income tax package, already flagged by<\/a> Minister for Finance Simon Harris<\/a>, is now a racing certainty after yesterday\u2019s figures showed total tax receipts of more than \u20ac50 billion in the first six months of the year. Even though the budget changes may just adjust the system for inflation it will, in time-honoured fashion, be presented as some kind of bonanza for middle Ireland. <\/p>\n The bill will, again, be paid by the ongoing rise in corporate tax revenues much of which, it could be argued, would more logically be paid in Washington. To trace the history of this bounty, we need to go back to 2015, when corporate tax receipts came in close to \u20ac7 billion. Behind the scenes, international tax changes led by the Organisation for Economic Co-operation and Development (OECD) were paving the way for a big change in the way multinationals paid tax. <\/p>\n But Ireland was under pressure. The Government had already just agreed to abolish the so-called \u201cdouble Irish\u201d tax scheme. The use of this allowance in extraordinary ways by Apple had been underlined in US Congressional hearings in 2013.<\/p>\n The State was firmly on the defensive. But a few smart brains in the OECD in Paris spotted what was coming next. Ireland was about to get lucky.<\/p>\n The new corporate tax deal had a rule about \u201csubstance\u201d \u2013 which meant that companies had to make their tax payments where they had substantial physical operations. The goal was to get rid of the postbox operations in sunny tax havens, mainly in the Caribbean, where US companies had held billions offshore. <\/p>\n Ireland\u2019s financial exposure has been long debated. And it is very real<\/p>\n This left the multinationals looking for some other home for the profits coming from their international operations. And, as this had to be somewhere where they had a significant physical presence, for many the answer was a no-brainer. Ireland. <\/p>\n This meant, crucially, that rather than their international earnings passing through Irish companies on the way to a sunny island \u2013 sometimes stopping off in the Netherlands on the way \u2013 they were stopping in Ireland. The money was resting in the Irish account. And this meant a bigger tax slice for Ireland.<\/p>\n This is the foundation stone of the corporate tax boom. And Ireland\u2019s luck continued. The second OECD tax deal, to which Ireland signed up in 2021<\/a>, helped again. It has meant an increase in the tax rate on the biggest companies from 12.5 per cent to 15 per cent, the benefit of which is now showing up in the figures. And the second part of this deal, which would have cost Ireland by taxing more profits elsewhere, has collapsed. <\/p>\n Over the past decade two big US tax reform plans \u2013 in 2017 and 2025 \u2013 have also avoided closing off the vital incentives for American multinationals to pay as much tax as they can overseas. And somehow the big US pharma companies have managed to persuade the Trump administration to back off the threatened imposition of tariffs which would have disrupted their Irish operations.<\/p>\n Each time it looked as if Ireland\u2019s luck might run out, the threat has passed. And so has US investment here, as \u201csubstance\u201d arrives as well as tax dollars. Despite Trump\u2019s drive to get firms to invest in America, IDA Ireland this week reported extraordinarily strong results for the first half of this year.<\/p>\n The Irish tax figures are so remarkable that the world is noticing \u2013 and this brings danger in the years ahead. US economist Brad Setser, who works for the Council on Foreign Relations think-tank, has pointed to<\/a> the near \u20ac300 billion annual profits declared by foreign multinationals in Ireland. The tax paid in Ireland by the three biggest payers \u2013 Apple, Microsoft and Eli-Lilly \u2013 at around \u20ac16 billion a year would, Setser points out, be enough to purchase four nuclear attack submarines.<\/p>\n The focus will only grow as new rules oblige the big companies to outline what tax they pay in each jurisdiction.<\/p>\n The scale of the corpoate tax payments is a huge boost to the exchequer but also puts Ireland in an uncomfortable spotlight. They distort not only Irish economic data, but also those of the euro zone. And the risk of US tax changes which could change the incentives for companies remains, even if so far corporate lobbies have fought these off.<\/p>\n Ireland\u2019s financial exposure here has been long debated. And it is very real. Just look at the inflated position of the US stock market, for example, and the uncertainties caused by the AI bubble and consider what a big market fall could mean. <\/p>\n For now, the populist backdrop means huge pressure to spend the money now to help households, as well as investing it. Insiders argue that this is an inevitable part of today\u2019s political economy and even necessary to maintain public support for centrist politics. Wealth funds don\u2019t win many votes.<\/p>\n The challenge, against this backdrop, is twofold. It is first to use the money \u2013 the opportunity \u2013 to achieve lasting change, rather than a temporary sugar rush. This means saying \u201cno\u201d to many budget demands.<\/p>\n