A low corporate tax rate has helped Ireland secure a considerable amount of investment since a 10% rate was introduced in 1980. The rate has since gone up to 12.5% but it has not stopped companies, particularly from the US, from setting up in the country

Fraser Logue: Before other countries start to criticize our rate, they should look perhaps at the tax regimes in place particularly across Europe

Ireland has been the economic success story among EU member states for many years, its levels of growth outstripping those of its partners by some margin. Foreign direct investment has been a key contributor to the economy's health and successive governments have used the corporate tax system effectively to attract overseas companies to establish operations in Ireland.

According to the American Chamber of Commerce in Ireland, US companies are responsible for $49 billion-worth of Ireland's foreign direct investment, employing more than 90,000 people, and €23 billion-worth ($27 billion) of trade between the two countries. Fraser Logue, director of operations at the Irish subsidiary of one of those companies, Abbott Diagnostics, which makes medical instruments, is president of the Chamber for 2006. He spoke to Ralph Cunningham of International Tax Review about the Chamber's views on the corporate tax system in Ireland and how Ireland can maintain its position as a leading low-tax jurisdiction.

What do you mean by a competitive tax regime?

The tax regime that we've got.

A low corporation tax rate is just one of a number of reasons why US multinationals come to Ireland but it's a very important one. Obviously Ireland's business-friendly environment, educated workforce, English-speaking and the world-class education system – these all play a part. Also the historical success of Irish operations is very important, but really it is the tax regime, which benefits both the exchequer and the companies, that has been very successful. Before criticizing it, I think it is good just to take a look and see what it has achieved. Foreign companies paid €2.5 billion ($3 billion) in tax and also paid a further €17 billion ($20 billion) in expenses in Ireland last year. These are very substantial operations.

What could the government do to make the tax system even more competitive? Or is it the ideal system as it stands?

Obviously, the American Chamber is a strong supporter of Ireland's current 12.5% rate. And the government has been very proactive in providing a framework in which we can compete very successfully to get foreign direct investment, particularly from the US. Attracting substantive active trading is the element that has been most successful for the government and that has had as its objectives job creation and sharing the success of these companies throughout Ireland.

Now, in general, the Chamber feels the current range of tax measures is appropriate. One of the major exceptions probably, is the framework for R&D. Ireland has a large manufacturing base and one of the roles of the Chamber is to help these jobs move up the value chain to more value-added jobs. Therefore, from the Chamber's point of view, much more can be done to develop R&D tax credits. The legislation as it stands at the moment, is inadequate and does not provide sufficient encouragement to large companies to bring all their R&D operations over here, when they can get more credit elsewhere. I think that's the area that we would say we need more movement on.

In a list of priorities about why an American company, or any company, would invest in Ireland or any country, where would tax come?

It's hard to say because each company is different. I think you just have to look at the contrasts. We've already agreed that there are many countries in which you can get a much lower effective tax rate, but then companies come to Ireland. I think it's for what I've been stressing. It's that balance between a good tax rate and the other environmental factors of workforce, agility and business-friendly environment and success.

Is there a rate of tax at which US companies might think again about Ireland? Or is that just speculation?

I think that would be speculation. I think the message we've given to our government is "Don't change it. Don't mess with what's working". As I said, the exchequer is doing well and business is doing well, so what we want to do is continue that vein of confidence in Irish operations and the best way to do that is if you've got something that's working, don't try and change it. I think the absence of a successful European model would perhaps confirm that.

From a tax standpoint, what other countries in Europe does Ireland compete with?

This is one of the central points. You know better than me that you can probably achieve a lower effective tax rate in any number of countries, but what Ireland is seen as is as a safe pair of hands for the technology and knowledge jobs of the future. And that's because the government has done a great deal of work in creating a business-friendly environment. We have a very highly motivated and skilled workforce, and the government is investing in education and R&D, although we would like to see more to ensure that a framework for successful operations continues and, as I said, I think the past success of the Irish operations is one of the reasons why, taking the whole package, of which corporate tax is a part, that's why we continue to be successful.

There are other low-tax jurisdictions in Europe, but what concerns would you have if a major country, such as Germany, for instance, decided that low tax was the way to go? How concerned would you be about US investment in Ireland then?

As I said, we can't compete on costs. We win new investment by playing to our strengths. We're a very proactive, business-friendly environment. We continue to address the education and skills of our workforce. I think the blend of the local Irish workforce and the corporate American structure is an increasingly successful model. And, as you know, companies are drawn to success. As long as we address the productivity issues needed to offset the growing cost base and continue to move companies up the value chain and continue to proactively ensure we have the infrastructure in place for that, then I think our outlook is bright.

Were you surprised at the negative publicity about the corporate tax rate at the end of last year?

No. I think what we would say is that we were concerned that it misrepresented the tax system in Ireland. Our concern lay in that if you look at Ireland's tax system, it is very open, it is very transparent, it is a system that is sanctioned by the EU. It is also backed by tax treaties with most of our trading partners. Its openness and transparency means that we have a standard rate for all companies – large companies, small companies, Irish companies, foreign companies. The implication that I thought was part of those articles was that we are a tax haven. We are not. We are a low-tax jurisdiction. And if you look at the success of the tax take and the success of attracting foreign direct investment, it is a very successful tax regime. And I think before other countries start to criticize our rate, they should look perhaps at the tax regimes in place particularly across Europe. The high-tax economic model followed in some European countries simply is not working. I think people need to think again about their own policies rather than attempting to influence Ireland's.

The low tax business model, as I have said, works to the advantage of business and the exchequer. The challenge for Europe is that instead of trying to go for a 'one size fits all' solution, it is going to end up with the lowest common denominator whereby Europe as a whole is going lose out. So I would challenge the other European countries to look at a 'one size fits all' form of harmonization or a healthy level of internal competition around areas such as tax and state aid. That is what we need to develop a vibrant European economy.

The Chamber would be against any moves towards a consolidated tax base or tax rates, or anything like that at a European level?

Very much so. As I said, I think the comments I made on the need for healthy competition would very much apply there. I can tell you that in our most recent business survey, 96% of our members who responded said they were happy with our present level of corporate tax and were confident that the government were fully committed to it. And our own tax group, because we have a number of working groups in the Chamber, is developing a paper in support of Commissioner McCreevy, resisting EU harmonization. Again, we are highlighting that our experience is that a low-tax model works to the advantage of business and the exchequer.

And quite honestly, if we could see some successful models in the European arena of a successful high tax model we would be interested, but we just do not see it.

Going back to what you were saying about Ireland being a low-tax jurisdiction rather than a tax haven, which I think most people would agree with, are you still not concerned at the negative publicity which mentioned some US companies and the amounts of money they were saving through being based in Ireland and the concern that Ireland might be seen as somewhere just for avoiding tax

It's quite easy to refute those statements. Although these make good headlines, you just have to look at it. There is a substantive presence here, over 100,000 jobs, 620 firms in Ireland. They contribute significantly to the wealth of Ireland through corporation tax. As I've said, what the government has been very successful at to date has been having a range of measures, everything from tax through to being proactive on education, to make sure that they attract substantive active trading. That's really been the key to it. And indeed, to invest in Ireland and to bring your trading activities here you have to pass a test of substance. As I said, although it made good headlines and probably presented some real concerns in terms of other countries' competitiveness, it doesn't take more than a considered look at the facts to realize that we are a successful low-tax jurisdiction.

Researching for this interview, I've been reading what you and other members of the Chamber have been saying about different parts of the country and how they need perhaps to catch up with the eastern seaboard. Does tax have any role in that and can the government use the tax system in that way?

Let me start from the Balanced Regional Agenda. It's perhaps significant at this time that I've become president of the Chamber for 2006 because, as you know, I'm based in the west of the country. And what we see is that as the jobs move up the value chain, if you like, in Ireland, there are some companies that will go to the eastern seaboard because they need access, they need a large population base. Parts of the regions are strong manufacturing bases at the moment, so we have to help them move up the value chain, so what we are needing in Ireland is balanced regional development. We need the infrastructure to go in to the regions, particularly access, broadband and areas like that. That can attract the high-value jobs such as R&D and marketing.

We also want the investment to help the infrastructure problems around Dublin, because Dublin and the surrounding area is itself very successful. I think that's more a question of regional planning, successful planning. Obviously in terms of attracting companies to different regions, we're bound by the same EU regulations as everyone else, so I think that's more a regional planning issue.

You mentioned earlier how the government could improve the R&D tax regime. Is that your priority for government action relating to the tax system? Is there anything else they could be looking at?

I think in general that would be our focus at the moment, to make sure we have as successful a tax regime for R&D as we've had for business in general. The Chamber is a very strong supporter of the low corporation tax rate, but in general, the current range of tax measures looks appropriate apart from R&D, so that would be our main focus. What we're looking to do is to compete with those countries where they can get full credit for all their R&D activities. Ireland needs to move up that chain quickly.

What are the threats, at an EU level, to US investment in Ireland?

In our recent business survey, American companies remained very confident about the future, but they did highlight competitiveness issues, particularly staff costs and transport. These are areas where we do see rises and Ireland is no longer a low-cost environment. So we can't compete on costs , but we can win new investment by playing to our strengths. We've got one of the best performing and most stable economies in Europe with a very competitive tax regime. Continued productivity gains will help to address the labour cost issue. By positioning Ireland in the newer knowledge-based industries and up the value chain, that's where we can compete and we have a very highly educated workforce, very agile and very committed and it's very important to companies locating in Ireland. And all the measures that the government brought forward in the recent budget: increased spending on science and technology, education-based initiatives, that's where we will compete. So we're very aware that our cost base and I think if you look at recent developments; the large announcement by Amgen [a biotechnology company] in Cork. They were very upfront. They said: "Yes, we know Ireland's costs are rising", but it's the confidence they had in their interactions with the government, the availability of the labour force and the fact that Amgen has a cluster of activities in several skills, such as in pharmaceuticals and IT. And, of course, the whole corporate tax rate. That was part of the package, but confidence and business-friendliness aligned with the educated and very motivated workforce were being quoted and that's what we would expect.

You said that you were confident the government would maintain the low tax regime and the minister of finance said at your Thanksgiving lunch in November that he could give an assurance that that would remain the case. How confident can you be? If the government gets into economic difficulties it may have to think about raising tax at some stage, won't it?

As I said, and this has been borne out by our experience, the low-tax regime has shown, by practical experience, to be of benefit to the exchequer and we welcome the fact that the minister made it clear that 12.5% rate is not open to amendment. And part of our role is to talk to all political parties to ensure that that message goes home loud and clear. Brian Cowen [the minister of finance], has been very explicit and understanding of our concerns and 96% of our members believes the government is committed to maintaining the corporation tax rate. This is hugely important in terms of being to allay the concerns of our parent companies. And I think, you know, the position of the Irish government is both rational and forward-thinking. I think Europe needs to look at its level of internal competition and make sure that it develops a vibrant economy so it doesn't lose out to other areas of the world.

You wouldn't be concerned if a more left-wing government was elected?

I think that everyone in Ireland is very aware of the role of foreign direct investment and of the success of the current regime and, yes, our business survey confirms that our members are confident the government and the political parties in Ireland are very supportive of the current tax regime, because it is so central to Ireland's success.

Getting on to the actual mechanics of tax, what do you think is the relationship between US companies and the tax authorities in Ireland? Is it good or bad, and where could it be improved?

I am not a tax expert, but what I would say to you is the Irish tax system is very transparent. It's backed by treaties with our major partners, including the US, with complete openness and transparency. I would suspect in terms of tax and tax mechanics, I can't think of concerns because of the openness and transparency. I think in the wider area of competitiveness, everyone – US, Germany and so on – understands we operate very much in a global economy and we need to recognize that competition for foreign direct investment is intense. Even though we have done very well with our tax regime, it is the other benefits of Ireland that we also need to bring into play.

If there is one thing, whether on tax or not, that you would like to see the government take action on in 2006, what would that be?

A more favourable R&D framework.

How much of a priority is that?

If you think of where Ireland has to get to. We have to move up the value chain, then it's a high priority, but the first priority is to maintain the current rate of corporation tax, which the government, both in public and in private, is fully committed to, and is successful.

One thing which just comes to mind now and I didn't mention before, the American Chamber's taxation group is working with a number of partners, the Institute of Taxation, IBEC (Irish Business and Employers' Confederation), the Federation of International Banks and financial groups on getting the remittance basis of taxation reinstated in some shape or form. From our members' survey, that has a negative impact on about 30% of our companies. It's the remittance basis for senior executives coming in from overseas. I don't think it's a life or death issue, but it's something we want to get back in some shape or form.