IRELAND’S TRADE RELATIONSHIP with the US is kind of important. You might have heard that once or twice before.

Again and again, the public is told about the value of American multinationals here. About the high-paying jobs they contribute to the economy, the tax which helps the state pay for its services.

So any time the US starts talking negatively about that trade relationship, there tend to be some sweaty palms in government buildings.

And it’s all gotten pretty negative lately – I mean, ‘tax scam’ isn’t exactly flattering language.

That comment came from US Secretary of Commerce Howard Lutnick during the week.

His gripes are ones which have been consistently aired by the Trump administration, such as its complaint about the ‘trade deficit’ between the two nations.

Irish politicians railed against the language, as they tend to do, picking up on the word ‘scam’.

It’s an easy out – Ireland, of course, isn’t doing anything technically illegal with its tax offering.

The government was also quick to point out that Ireland’s trade deficit with the US isn’t actually as big as Lutnick said it was.

But to get hung up on the details is to miss the bigger picture. The US says that it isn’t benefiting enough from the likes of its pharmaceutical industry.

It feels that the likes of Ireland are exploiting international rules to get oversized rewards, such as the surge in corporate tax we’ve enjoyed. 

Do they have a point?

Well, yes – but there’s also a ‘but’.

The biggest financial story in Ireland

First off, Ireland of course has benefitted from US companies.

The numbers involved are staggering. In 2014, Ireland collected €4.6 billion in corporate tax. Just a decade later, that number has multiplied six times over to €28 billion. 

The scale of the increase is extraordinary – it may be the biggest financial story in recent Irish history.

After all, this extra cash is single-handedly keeping the state’s finances in the red.

Without it, income tax cuts such as those delivered at the last budget would likely be off the table, and there could be spending cutbacks in other key areas.

So, what happened in the last 10 years that could explain a six-fold increase in Ireland’s corporate tax take?

Have companies become six times more profitable? Eh – let’s chalk this one up as ‘unlikely’.

There have been increases in profitability. And with the economy performing well, there are more businesses performing well now than there were in 2014. But these facts don’t come close to explaining the scale of the corporate tax increase.

For an explanation, take a look at a review by an Oireachtas body, which recently found that Ireland’s ‘computer services exports’ soared from €32bn in 2015 to €196bn in 2022.

Ireland isn’t producing that much extra stuff. Rather, big global companies are booking their profits here.

Take a look at the 10 biggest corporate taxpayers in Ireland, as published by the Irish Times.

While the publication cautioned that the list may not be definitive, as many big firms don’t publish all of their financials, it’s likely pretty accurate. 

Among others, two characteristics of the 10 jump out.

First, not a single one is Irish. 

Second, they’re all American.

While most of these companies have decent sized operations in Ireland, that doesn’t explain the massive profits they declare here.

This is where the tax system comes into play – and that seems to be a key sticking point for the US.

Many US companies shift their profits to Ireland, paying some tax here, but reducing their tax bill overall.

This is something which Ireland has actively encouraged in the past. 

Google

In 2015, there was an international focus on multinational tax avoidance. As a result, many big companies moved their intellectual property (IP) from jurisdictions with no corporate taxes – like, say, Bermuda – to ones which had low rates, but were still considered legitimate, such as Ireland.

A clear example is Google shifting about $20 billion in revenue from a corporate entity in Bermuda to one in Ireland.

This tends to be done via IP – the copyrights and patents which underlie the sale of products and often determine where profits are booked.

Ireland brought forward a tax break in 2014 which made it attractive for US companies to move their IP to Ireland. Many of them moved their IP between 2015 and 2017. 

With their IP now in Ireland, US companies declared more profits here, and Ireland’s corporate tax take boomed.

So yes, Ireland played the international tax system to its advantage. Whether you think it’s a ‘scam’ or not is a matter of interpretation. 

What Ireland did was legal, although helping big multinationals reduce their tax bill may not be considered the most ethical move in the world.

But the US often ignores the other side of the coin – its own role in enabling profit shifting.

Related Reads

What do we know about Trump's tariffs that are hitting Ireland and the EU next week?

Harris speaks with US commerce secretary Lutnick, who called Ireland his 'favourite tax scam'

Enterprise Minister says Ireland 'absolutely not' a tax scam after US Commerce Secretary claim

There’s a reason that the big multinational firms avoiding tax usually tend to be American.

It’s because the US has an unusual system, which allows its companies to avoid paying corporate tax on foreign profits until they are ‘repatriated’ to the US.

This incentivises US companies to move their international profits around to minimise their tax bill.

So if the US doesn’t like the current situation, could it change the tax rules itself?

Possibly. There have been examples of that before.

For example, a few years ago there was another instance where the US may have felt Ireland was running a kind of ‘tax scam’.

This was during a wave of so-called ‘corporate inversions’. Basically, a US firm would buy a company with its headquarters in a lower-tax country and then declare its worldwide profits there.

Ireland became a popular destination, with the likes of pharma giant Medtronic shifting its headquarters to Dublin to pay less tax.

Pfizer also tried to do the same, planning to spend $160bn on buying an Irish-based pharma firm. Then the US changed the rules around inversions, making them less attractive. 

Pfizer called off the deal, and inversions such as these largely stopped.

Tariffs

The question now is: will the US do something to stop Ireland’s so-called ‘tax scam’?

Tariffs could massively hurt pharma companies based in Ireland, and may make some companies consider shifting their operations.

But the more immediate question is whether tariffs will push US companies to shift their profits. Will they move them from Ireland to the US?

The US switching the rules on inversions didn’t have a major impact on Ireland in the long-term. 

This was perhaps because some, such as Medtronic, had already moved their headquarters ahead of the change. Others were able to move their IP and profit-shift instead.

And Ireland actually seemed to benefit from the 2015 international crackdown, as money flowed here from the likes of Bermuda.

But tariffs could start changing the maths on whether it makes more sense to declare profits in Ireland or the US.

And some economists have also pointed out that America could give tax breaks to encourage companies to shift their IP to the US - as Ireland did previously.

So while Lutnick’s language around Ireland running a ‘scam’ may be colourful, there’s little question that the country has benefited enormously from the international tax system.

History shows it’s hard to predict how changes to this system will actually work in real life. But all signs point to the US trying to tip the scales more and more in its favour.