Ireland may have done the once unthinkable by giving up its prized 12.5% corporate tax rate in a global shakeup but it and other developed nations appear set to continue dividing up the spoils of foreign direct investment.
Some 136 countries on Friday agreed the first major overhaul in a generation of the rules for taxing multinationals, with measures including a global minimum rate of 15% intended to discourage them from booking profits in low tax countries.
Ireland’s dropping of its opposition on the eve of the deal handed efforts a major boost. But many developing countries say their interests have been sidelined, while charity Oxfam called the agreement “a rich country stitch-up”.
“We will continue to compete with largely the same jurisdictions,” said Martin Shanahan, the head of IDA Ireland, the state investment agency that has convinced the likes of Apple (AAPL.O), Facebook (FB.O), and Pfizer (PFE.N) to set up European headquarters in the country of just 5 million people.
Adding future technology giants to that list is still likely to mean going up against Berlin and London. For pharmaceuticals and medical devices, the toughest competition will come from Switzerland and Singapore.
Shanahan has also pointed to Spain and parts of Eastern Europe in recent years as increasingly competitive in the race for multinational investments that directly account for one in six Irish jobs.
Many of those competitor countries have corporate tax rates well above Ireland’s current 12.5% and the incoming 15% global minimum. Dublin has long argued that it takes more than just low taxes to attract investment, pointing to Ireland’s young, highly educated workforce and European Union membership.
Announcing the opening of a new European headquarters in Dublin this week, U.S. online gifting platform Sendoso said corporate tax was a very small factor and that the global deal did not change Ireland’s strategic advantages of as a location.
The head of Ireland’s National Treasury Management Agency said on Thursday that digital payments giant Stripe had never brought up tax when discussing rapid hiring plans in Ireland. The Irish sovereign wealth fund, which the NTMA manages, invested in the U.S. startup’s latest funding round in March.
Nevertheless, low tax countries could have suffered a far worse outcome. The United States, which led the recent charge to strike a deal, initially wanted a 21% minimum rate and the draft OECD agreement struck in July settled on “at least 15%”.
Dublin lobbied hard to remove the “at least”. On succeeding, the government said it had maintained the stable business environment required to compete for investment.
“If we had a rate of ‘at least’ 15%, it would have created a lot of uncertainty about the attractiveness of our regime and that could have limited new investment and even a potential outflow of existing investment,” said Peter Vale, a tax partner at Grant Thornton in Ireland.
“We played a strong hand and I think it’s ended well.”
The effective preservation of the status quo – albeit with multinationals coughing up more of their profits – has angered developing countries that see few gains.
Argentine Economy Minister Martin Guzman said on Thursday the proposals forced developing countries to chose between “something bad and something worse”. Argentina had reluctantly signed up to the previous version of the deal.
“It is shameful that the legitimate concerns of developing countries are being ignored while countries like low-tax Ireland are able to water down the already limited aspects of the deal,” Oxfam’s Tax Policy Lead Susana Ruiz said in a statement.
“The proposal for a fixed global rate of 15% will overwhelmingly benefit rich countries and increase inequality.”
Ireland knows how long it takes to catch up. As recently as 1980, when Apple founder Steve Jobs arrived to open its first plant outside the United States, Ireland was one of the poorest countries in Europe, with a jobless rate heading towards 17%.
“We opened up the economy in the 1950s and prior to that we were probably inward-looking, protectionist and poor,” IDA Ireland’s Shanahan said, looking even further back.
“It takes a long time to build up the capability and the offering.”