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Are the Halcyon days over for Ireland?
Those were
the days my friend … We thought they'd never end … We'd sing
and dance forever and a day … We'd live the life we choose …
We'd fight and never lose … For we were young and sure to
have our way … la la la....
Gene
Raskin, Boris Fomin.
Introduction
April 2nd, 2025, may very
well be remembered in Ireland as the day it came face to
face with the realization that the days of riding the wave
of economic hubris may be over. Liberation Day, as it was
coined by its author President Trump, set in motion a
unilateral and undefined reordering of the global economic
system primarily targeting countries with trade balances
unfavorable to the United States. According to Trump, these
countries were taking advantage of the United States or in
other words ‘screwing the United States’.
During a recent stop over
at Shannon Airport, Scott Bessent, the U.S. Treasury
Secretary intimated that Ireland is amongst the fifteen
countries targeted as having one of highest trade imbalance
with the U.S. There is little Ireland can do to convince
Trump otherwise or that Ireland should be exempted from
retaliatory tariffs because of its special relationship with
the U.S., a relationship built on friendship and a shared
history underpinned by forty two million Americans of Irish
descent. That argument would be lost on Trump.
A vulnerable economy built on happenstance and schemes.
Since joining the European
Economic Community in 1973, Ireland has evolved from an
agriculture based economy to a knowledge based economy
encompassing high-tech, pharmaceuticals, financial services
and agribusiness, i.e., farming related commerce.
Ireland is uniquely
situated to attract foreign investment. In addition to being
the only English-speaking country with unimpeded access to
the European Union marketplace, it has had a very favorable
tax regime and a highly educated and flexible work force. As
a result, Ireland attracted multinational companies from
across the globe, particularly from the United States. This
more than any other factor is what fuels the Irish economy.
According to some data crunchers, it has raised the standard
of living to one of the highest in Europe. Despite what data
crunchers conclude, the term ‘standard of living’ is
nonetheless subjective depending on one’s circumstances and
sense of economic security --- for many in Ireland, in all
walks of life, the root cause of an ever-present gnawing
unease.
One factor in particular
that has fueled Ireland’s e extraordinary investment splurge
has been the tax regime. European Union countries require
all members to adhere to a common corporate tax policy so as
to even the playing field regarding foreign investments. To
circumvent that requirement, Ireland and a few of other
countries secretly engaged in ‘sweetheart deals’ with a
number of Multinational Enterprises (MNEs) as enticements to
site their operations in their respective countries.
In 1991, the Irish
government entered in one such deal with Apple not available
to other corporations. That dubious deal allowed Apple to
set up numerous subsidiaries in Ireland strategically
structured to reduce the rate it was taxed to the low single
digit percentages and at times to as low as 0.05 %. The
prevailing tax corporate rate for other corporations was
12.5%.
Ireland’s role in the deal
was classified as a tax haven for Apple by the trading
world.
Consequently, Apple lost a
€13 billion lawsuit in the EU's highest court regarding the
low tax bills it paid for years in Ireland in a judgement
released in September 2024. According to the courts
findings “Ireland granted Apple unlawful aid which Ireland
is required to recover", the Court of Justice said in a
statement, giving a "final judgment" in the matter.
When the scope of the
economic subterfuge by the rogue countries came to light,
compliant countries in Europe together with the United
States forced the non-compliant countries to agree to an
across-the-board minimum corporate tax levy of 15% for all
companies.
The straw that broke the camel’s back
After the Organisation for
Economic Co-operation and Development (OECD) published its
Transfer Pricing Guidelines for Multinational Enterprises (MNEs)
and Tax Administrations in 2010, the Irish government
followed through by enacting legislation to facilitate the
transfer and protection of intellectual property rights
i.e., patents, trademarks, copyrights, industrial designs,
publishing rights and brands. The transfer pricing rules
spelled out in the legislation applied to domestic and
international trading arrangements.
In order to streamline the
process, the government set up a dedicated government sub
department to incentivize and assist (MNEs) transfer their
intellectual property rights to trading subsidiary entities
in Ireland to avail of the favorable tax pricing regime
included in the legislation.
Although intellectual
property is not in the everyday lexicon of ordinary
citizens, it nonetheless impact everyone’s life and
livelihood. It is a creation of the mind, the precursor to
practically everything we use in our lives.
Intellectual property can
be the creation of one mind or a collaboration of many minds
emanating from university laboratories or corporative
research centers. Irrespective of the origin it’s crucial
that Intellectual Property is protected from unauthorized
use so that the creators or owners can benefit without fear
of theft or exploitation. That protection is provided by
national and international laws and treaties.
Thus far the arrangement
has been a win-win for all parties. It has super charged the
Irish economy and broadened the government’s taxation base.
By the same token, it enabled the MNEs to take advantage of
Ireland’s 12.5% lucrative corporate tax rate as well as the
tax write offs for the cost of purchasing or developing
qualifying intangible assets i.e., intellectual property.
These write offs further reduces the effective tax rate to
as low as 6,25%.
That new policy initiative
resulted in an extraordinary economic growth rate for
Ireland that in recent years has surpassed that of all other
Europe countries. On the flip side, that same policy
initiative is tantamount to a bone in President Trump’s
craw. As a consequence, Trump will make Ireland pay a steep
price for ‘hijacking’ American innovation and for the ever
increasing lopsided U.S. trade deficit with Ireland.
Despite his ill-conceived
retaliatory tariff wars primarily aimed at those he
considers to be the worst trade deficit offenders, many of
his supporters and detractors would agree that the $107
billion U.S. trade deficit with Ireland in 2024 constitutes
a legitimate grievance. The fact that these underwater
trade deficits go back to 1986 makes an untenable situation
worse for Ireland.
For the
record, the deficit amount shown above is taken from trade
deficit statistics published by the Central Statistics
Office (CSO).
Conclusion.
The fallout from Trumps
retaliatory tariff war is difficult to predict or plan for
as he continuous to change his mind about what his aims are,
or which countries will remain the focus of his attention or
for that matter retribution. All that Ireland can do now is
to lay low and hope the European Union sticks together and
negotiates as a single entity. If Trump manages to separate
and treat each European Union country differently, Ireland
will find itself in a bad place.
The Irish government is by
no means an innocent victim caught up in this saga. Tima
and time again it has displayed a propensity to wriggle its
way around rules and regulations and then pretend it is the
victim of unnecessary sanction for doing so. It’s also good
at sitting back and letting other government take the lead
as it does when it lets the British government take control
of matters relating to Northern Ireland and Irish
reunification.
The government behaved the
same way during the Celtic Tiger era when it let developers
and banks tank the economy and then burdened taxpayers with
a €140 billion bailout bill to make the banks whole again
and afterwards let private equity funds feast on the spoils.
There is a lesson here for
Ireland. Easy solutions and subterfuge always comes back to
bite you. When that happens, it manifests as a
vulnerability. To mitigate for such, Ireland must develop a
strong domestic economy that can withstand the worst
consequences of the instabilities inherent in ploys,
globalization and other geopolitical uncertainties. If the
leaders of today cannot do that, they should step aside and
let others more qualified to take on the task.
Contributed by TMMTP
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