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Brexit a clear opportunity to attract FDI says Davy

Written by Robert McHugh, on 16th Feb 2017. Posted in Ireland

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President Trump and EU corporate tax reform proposals have provided fresh impetus to the debate on Ireland’s attractiveness as a location for foreign direct investment (FDI), according to a report today by Davy Stockbrokers. 
 
Davy believe that the changes to the US corporate tax regime will have a limited impact. In addition, EU plans for a common consolidated tax base will not be implemented they say. 

In contrast, Davy believe Brexit unambiguously makes Ireland more attractive for FDI vis-à-vis its main competitor, the United Kingdom.
 
Recent figures show that multinational sector employment grew by a robust 6.3% in 2016 to 200,000 currently, representing 10% of the workforce. Despite this sustained success, a persistent concern among investors has been that corporate tax reform could undermine Ireland’s attractiveness as a location for FDI. 

Brexit, President Trump’s plans for corporate tax reform and revamped European Commission proposals for a common consolidated corporate tax base (CCCTB) have recently added a fresh range of issues to the debate.
 
However, Davy Stockbrokers claim that Ireland’s 12.5% corporate tax rate is just one factor attracting FDI. They say academic evidence points to labour market flexibility, EU single market access and technological development as other factors influencing companies’ location decisions. 

The headline tax rate is also a poor summary statistic of corporate tax regimes they believe. Irish corporate tax revenues equalled 2.7% of GDP in 2015 versus 2.6% in France and 1.6% in the US, reflecting the many and varied tax reliefs and allowances that allow companies to reduce taxable profits. Also, 60-70% of multinational sector jobs come from existing companies operating in Ireland.
  
Furhermore, they say President Trump’s plans to cut the US corporate tax rate to 15% and provide a tax holiday on repatriated profits are unlikely to hurt FDI into Ireland. More problematic are proposals for a US ‘border-adjustment tax’ or the European Commission’s plans for a CCCTB.

However, Davy say political realities suggest that these proposals will not come to fruition. The former could fall foul of World Trade Organization (WTO) rules and risk retaliation from the EU and other countries. The CCCTB would lead to clear ‘winners and losers’ among EU countries, precisely why it will not be adopted they say.
 
According to Davy Stockbrokers, "Ireland’s main competitor for FDI is the UK, currently with a $1.5trn stock of inward FDI – the largest in Europe. Brexit poses clear challenges for Ireland’s export sector, specifically for agriculture and traditional manufacturers should tariffs be imposed." 

They added, "However, the academic evidence clearly shows that single market access is a key requirement in attracting FDI. Uncertainty surrounding the outcome of the Brexit negotiations has already led to financial services companies identifying Dublin as an alternative location to London. Given that Ireland has captured 8% of FDI flows into the EU on average through 2007-2014, it can expect to benefit as FDI flows into the UK recede."
 
Source: www.businessworld.ie 

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