The Luck Of The Irish Tax Break

It's a long way to Tipperary but tax savings are there.

Irish Supply Chain
Irish Supply Chain. Getty Images

In my role as a supply chain pro, I have had the good fortune to travel to Ireland several times.  The reasons for cherishing a trip to the Emerald Isle are many.  Guinness, Bailey’s and Jameson’s are on the list.  And when you wake from your stupor, there’s the golf and thatched roof houses and Waterford crystal.  There’s nothing quite as breathtaking as an Irish landscape, after a downpour, with a rainbow stretching across the glistening sky.

 

At the end of that rainbow, you might find a pot a gold, a Leprechaun chasing it or perhaps a United States corporation doing the same.  Irish ballads about “Danny Boy” and “Tipperary” might make you weep, with the longing not unlike that of a Chief Financial Officer who knows there’s a 12.5% corporate income tax at the end of a rainbow that he hasn’t capitalized on yet. 

Since 2010, U.S. based multi-billion dollar companies like Seagate, Eaton, Activis and Medtronic have managed to move their home tax locations to Ireland.  Pfizer and Johnson Controls are also riding the down slope of the rainbow to their own particular pots of gold. 

If you were to take the cumulative net income of just five large corporate emigrations to Ireland (counting from the effective date of the switch to Irish tax laws), and then consider the difference between the U.S. corporate income tax rate of 35% and the aforementioned 12.5% Irish rate (a whopping 22.5% difference!) – you might come up with a figure somewhere between $2.5 and $3.5 billion dollars in tax savings that those companies have realized.

 

You might do that, but you don’t have to.  I just did it for you.  And – full disclosure – I did it on the back of Guinness-soaked coaster.  Ergo, the numbers I came up with may not be entirely accurate – but they’re in the ballpark (or, rather, on the Gaelic football pitch).  Yes, yes, I understand there’s a difference between a statutory corporate income tax rate and an effective corporate income tax rate.

  And there are thousands of variables a play in calculating income tax, especially hypothetical income tax.

The point is, the tax avoidance corporations realize by moving to locations like Ireland are, 1) astronomical, and 2) entirely worth whatever negative press they receive from this tax inversion. 

On the one side of the tax inversion argument is: it’s unpatriotic to move billions of dollars of potential revenue away from the U.S.; and that’s not counting any number of jobs that leave the Land of Opportunity for opportunities elsewhere. 

On the other side of the tax inversion argument is: are you kidding me? I can save hundreds upon hundreds of millions of dollars every year by moving my mailing address to Dublin?  Where do I sign up?  I mean, yes, I get the “unpatriotic” and the “losing jobs” argument, but it’s hard to imagine that who wouldn’t move across the ocean to save 22.5% of their take home pay. 

I’m planting myself firmly on the fence here.  Tax inversion may be good or it may be bad, but it’s not going to change unless the incentive to do it is taken away.  That said, I’d like to circle back to those trips I’ve made to Ireland.  I traveled there as a supply chain pro, as I mentioned.

 

And that’s because those tax incentives are good for corporate tax filings, but also for building up manufacturing facilities and shipping product and realizing profit in that specific geography.  Tax avoidance is a reality of global business and your global supply chain should be optimizing tax incentivized geographies. 

If you’re in a highly regulated industry, chances are you can’t make a quick move in manufacturing locations.  But do the ROI – is it worth the months of resources and the hundreds of thousands of dollars to move your manufacturing from a high tax region to a low tax region (to save millions of dollars)?  Exactly. 

It may be a long way to Tipperary, but for a 22.5% tax savings, it’s probably worth the trip.