Can Ireland, which has the lowest corporate tax in Europe, continue to attract Chinese companies?

Original title: Can Ireland, which has the lowest corporate tax in Europe, continue to attract Chinese companies?

The Group of Seven (G7) recently reached an agreement on the framework of a global tax agreement, unanimously agreeing to set the global minimum corporate tax rate at at least 15%. How will this affect low-tax countries? Will it affect Chinese companies’ investment in these countries?

In Europe, Ireland is a traditional low-tax country. Some companies set up their registered place in Ireland and set up their business places elsewhere. These companies only need to pay the 12.5% ​​corporate tax required by Ireland, and this operation is called an “Irish sandwich.”

Irish Finance Minister Paschal Donohoe said: “It is in everyone’s interest to reach a sustainable and fair agreement on the international tax structure. The new tax principles need to support innovation and growth and take into account the possible differences in each country.”

In an interview with a reporter from China Business News, Zhang Zhewei, director of the China Region of the Investment Development Agency of Ireland (IDA), said that the plan is still in the early stage of proposal, and a political agreement needs to be reached and follow-up technical support is needed. In addition to taxation, investors are also concerned about issues such as the business environment and the supply of talents.

　　How will it affect low-tax countries

Among the top ten technology companies in the world, nine companies have their European headquarters in Ireland. Not only that, the European headquarters of many world-leading data and artificial intelligence companies are also located in Ireland, which is where more than 30% of data center activities in Europe occur.

The Irish Ministry of Finance stated that if the global minimum corporate tax rate is set at at least 15%, the country will lose about 20% of theRevenue, Which affects the competitiveness of small and medium-sized economies, which in turn affects the recovery of the global economy.

Donohue said that as a small country, Ireland’s tax policy is a legal leverage tool to make up for its disadvantages compared to large countries in terms of population size, geographic location, natural resources, and industrial capabilities.

He believes that any new global taxation framework should consider several “principles.” First, we need to continue to support innovation and growth. Second, the agreement can provide certainty and stability. Third, it is hoped that collective and consistent implementation can be ensured. Fourth, in a sense, Ireland hopes that this agreement will promote healthy, appropriate and acceptable tax competition. In the so-called competition, we need to take care of the differences that each country may have, and hope that the final result will be fair and balanced for all countries.

In Zhang Zhewei’s view, although the current G7 has reached an agreement on the framework of a global tax agreement, it is still too early to discuss the specific impact on any individual country.

“The discussion of the global minimum corporate tax rate is still in the early stage of proposal. It needs to reach a political agreement and need follow-up technical support. An agreement like this is very difficult to reach an international consensus. Because each country will not transfer any sovereignty issues. Interests, and there will be quite complex games within the member states, so this agreement will inevitably need to go through a long-term negotiation process.”

In addition, another analysis believes that even if the world‘s lowest corporate tax rate is finally implemented, the impact on Ireland will not be too great, and there is a high probability that technology companies will not move their headquarters from Ireland.

Bloomberg quoted analysis and said that although the 15% minimum corporate tax rate proposed by G7 is higher than the current 12.5% ​​corporate tax rate in Ireland, it is still lower than the corporate tax rate of 20% and above in the United States, France and other countries. Ireland has also signed tax treaties with other countries that allow multinational companies to pay lower tax rates and take incentives to compensate companies for their R&D expenditures. If the initiative fails to address the other benefits that tax havens provide for large technology companies, these low-tax countries may still maintain many advantages.

The Think Tank Tax Justice Network also believes that some companies may move their headquarters out of low-tax countries such as Ireland, but these countries still have many incentives to retain these companies.

Up to now, the four US technology giants known as “GAFA” have all stated their support for the lowest global corporate tax rate, saying they support the agreement, but these companies have not responded to the impact on their businesses in Ireland.

　　“Taxation is just one of the advantages of attracting foreign investment”

Donohue said that taxation is indeed a big advantage for Ireland to attract foreign investment, but Ireland will also make efforts in other areas to ensure that the country is still a very attractive country for foreign investment.

Zhang Zhewei told a reporter from China Business News that in addition to tax policies, if investors invest overseas, the first consideration is a stable and consistent business environment and whether the investment location can provide highly skilled labor. This is Ireland’s advantage.

“usually,Foreign direct investment(FDI) has strong liquidity. When an enterprise’s decision-makers consider where to invest, it will inevitably list some key considerations, such as technology, market, tax system, labor law, etc. It is a process of comprehensive consideration. Finally, I came to a conclusion that a certain location for this company in the next 3 to 5 years, or in a certain strategic stage, can meet the development needs of the company. “

As far as Ireland is concerned, Zhang Zhewei said that compared with other European countries, Ireland has three major advantages: geographical location, labor quality and industrial resources. First of all, Ireland is the entrance to Europe or the European Union. Secondly, the Irish workforce is highly educated and the workforce is highly efficient. Third, Ireland has established an excellent global reputation in the fields of medicine, medical technology, technology and financial services. Many of the world‘s top companies in these fields have already established business here.

In recent years, Chinese companies’ investment in Europe has continued to increase. According to the “Overview of China’s Overseas Investment in the First Quarter of 2021” released by the accounting firm Ernst & Young, in the first quarter of 2021, China’s industry-wide outward direct investment increased by 12.6% year-on-year.Overseas announced by Chinese companiesM&AThe amount increased sharply by 135% year-on-year, reaching $17.2 billion. Europe is the most popular overseas M&A destination for Chinese companies, accounting for 45%.

Zhang Zhewei believes that in the past, Chinese companies invested in Europe mainly because of market opportunities and customer distribution. But slowly, the motivation for Chinese companies to go overseas is changing. In addition to the market, companies also pay attention to factors such as technology and talent reserves.

Zhang Zhewei gave an example to a reporter from China Business News. Recently, many new energy automobile companies have chosen to go overseas to Northern Europe because they have taken a fancy to industrial factors. “In some specific industries or fields, some countries may go faster.” Zhang Zhewei said, “As far as new energy vehicles are concerned, their industrialization and scale have been gradually realized in recent years. Europe. It is currently the largest new energy vehicle market. This trend is irreversible, and there will be more room for development in the future. There are many opportunities in this industry, including the development of the industrial chain will become more and more mature, and the layout of the company It will also be adjusted accordingly.”

At the same time, Zhang Zhewei believes that the macro-political and economic environment, talent pool and localization will be the three major challenges for Chinese companies going overseas in Europe.

He believes that, first of all, regulations are a big challenge.For example, in the digital or content service industry, companies will faceGDPR and other aspects of supervision. Secondly, in terms of talents, what needs to be considered is whether there are international talents and whether international talents can be hired locally. Third, in terms of localization, how can companies better integrate with the local market and gain the trust of local consumers after going global. “The above three points will affect the speed and quality of Chinese companies going overseas.” Zhang Zhewei said.

(Source: China Business News)

(Editor in charge: DF398)