DUBLIN: A one percentage point increase in Ireland’s statutory corporate tax rate would reduce its chance of being chosen as a location for new non-EU foreign direct investment (FDI) projects by 4.6 percent, according to research by the Economic and Social Research Institute (ESRI).
ESRI’s new report, “Corporate Taxation and Foreign Direct Investment in EU Countries: Policy Implications for Ireland,” examined the impact of corporate taxation and other factors on the attractiveness of Ireland, and other EU countries, to FDI. It said that on average, all else being equal, lower corporate tax rates increase the attractiveness of EU countries to FDI. However, a number of other factors, including market size, access to the European single market, production costs, and research and development capacity, significantly increase competitiveness over and above the effect of corporate tax rates.
According to ESRI, Ireland and the UK are perceived to be similar as alternative locations for FDI, particularly by investors from outside the EU and for FDI in the services sector. It said that a possible redirection of FDI from the UK to Ireland in the case of “Brexit” would be more likely from outside the EU and in the services sector.
ESRI added that investors from outside the EU mainly seek access to the European single market and are more likely to choose locations with low corporate tax rates. Intra-EU investments are more likely to be located in countries where the corporate tax rate is high but investors benefit from other local advantages such as low production costs.
ESRI concluded that “the sensitivity of Ireland’s attractiveness to FDI with respect to changes in its corporate tax rate is the highest among all EU countries in the case of FDI projects by investors from outside the EU.”
It argued that a one percentage point increase in the 12.5 percent corporate tax rate would reduce Ireland’s chance of being chosen as a location for FDI projects by non-EU investors by 4.6 percent. It also warned that a one percentage point reduction in the UK rate would reduce the prospect of Ireland being picked for FDI by non-EU investors by 4.3 percent.
