Almost 1 trillion worth of intellectual property moved to Ireland over last decade

[Ruffian]

An excellent summary. But a further detail is tax and tax relief.

Although the Irish companies own the intellectual property, this is not because they did the research, design, coding etc that gave rise to it. It was mostly done by yet other companies in the same group, mostly in other countries, and then those companies transferred or sold their intellectual property to the Irish companies.

The Irish holding company purchases the intellectual property from others in the group who did the development (directly or indirectly). They pay say €40 billion for this. This cost can be written off by the Irish holding company against Irish tax on the royalties from the products made in China (or Vietnam, etc). Ireland collects 15% tax on these royalties beyond the €40 billion write-down - which is still quite a lot of tax.

It is why we can't depend on this "froth" in corporation tax remaining in place indefinitely. Biden had it in his sights before Trump. But it requires a change being to be made in US tax law by Congress. Trumps tariffs can't get at it directly (but could be nasty in other ways).

 

[joe sod]

is why we can't depend on this "froth" in corporation tax remaining in place indefinitely. Biden had it in his sights before Trump. But it requires a change being to be made in US tax law by Congress. Trumps tariffs can't get at it directly (but could be nasty in other ways).

And while tariffs are proving highly unpopular and problematic for trump changing US tax law by Congress to stop the practice of moving IP abroad would be very popular even among democrats. It's just that trump couldn't do it by executive order but it will be next in their sights when they climb down over tariffs.

It hasn't been that beneficial overall for Irish state anyway, it has made the state too big and wasteful, it doesn't need to listen to small indigenous businesses anymore as it has all this corporation tax and can buy off people. All this has been very unhealthy for Irish indigenous economy driving up costs and inflation

 

[Ruffian]

And while tariffs are proving highly unpopular and problematic for trump changing US tax law by Congress to stop the practice of moving IP abroad would be very popular even among democrats.

Popular and a cross-party issue for several years. What is fascinating is that despite this there has been no reform of the law yet. It shows the lobbying (ahem!) power of these companies who are reaping the profits, and of their major shareholders who are the ultimate beneficiaries. But, as you say, it can only be a matter of time.

 

[joe sod]

How did Ireland manage to accommodate this movement of IP before anyone else saw it, obviously they would never move IP to China or other such countries. Ireland changed its tax laws aswell to facilitate all this, I think it only became big from a decade ago, what changes did Ireland do to facilitate all this?

 

[Dr Strangelove]

Ireland changed its tax laws aswell

Ireland’s CT laws are pretty much the same.

 

[Ruffian]

Ireland changed its tax laws aswell to facilitate all this

I don't think Ireland deliberately targeted the big shift in intellectual property here from about 2015/16 onwards. A critical factor seems to have been the international labelling of islands like Bermuda and The Caymans as tax havens and centres of money laundering. Many American multinationals had previously moved substantial intellectual property rights to related companies in those locations. The attention and opprobrium that came to these locations around that time made it too hot. As they already had "real" businesses in Ireland they began moving IP here. It also (ironically) helped that the government was closing off the "double Irish" tax avoidance route (enhancing our reputation or, at least, erasing an unfavourable reputation).

In Ireland the multinationals were subject to tax (at a then12.5%) and they could write off the purchase price for the IP transfer. Although Ireland's tax was low, the rate and the tax laws were transparent. It was not the Caymans and it was more favourable to their reputation than the obscurity of tax havens.

The subsequent level of transfer to Ireland and the surge in taxation unrelated to real activity here has been excessive from our point of view. A little might have got away under the radar. The size of the actual bullion cannot and has made us a target.

 

[zephyro]

The Irish holding company purchases the intellectual property from others in the group who did the development (directly or indirectly). They pay say €40 billion for this.

But it gets even better ... the foreign parent company gives the Irish holding company a virtual loan to buy the virtual IP asset from them, the Irish company can also then claim tax relief on the loan interest in addition to using CAIA to write-off the acquisition cost of the virtual IP asset against corporation tax over many years.

 

[TomEdison]

How did Ireland manage to accommodate this movement of IP before anyone else saw it, obviously they would never move IP to China or other such countries. Ireland changed its tax laws aswell to facilitate all this, I think it only became big from a decade ago, what changes did Ireland do to facilitate all this?

For decades now, Ireland has made it a priority to attract inward investment, and has been very creative (and extremely successful) in identifying opportunities and developing strategies to capitalise on them.

There are core long-term strategies which aim to make Ireland a generally favourable place for inward investment — heavy investment in education and skills; EU membership; an open trading policy; competitive and consistent corporation tax regime. Then a lot of resources are put into monitoring international trends to identify opportunities, and then to target those opportunities — that's basically the IDA's whole job.

There's a recognition that the world is constantly changing and that the strategies that are effective at any time will cease to be effective, so there;s a continuing commitment of resources to identifying new opportunities and devising strategies to exploit them.

Tax does form a part of this, but often a smaller part than people assume. We do have a suite of favourable measures for the tax treatment of IP, but that was introduced only in 2015, at which point Ireland was already a signficant player in pharmaceuticals and (I think) many tech companies were already basing their IP assets in Ireland.