Ireland has a low corporate tax rate of 12.5%, which has attracted many multinational companies to base their European operations there. These companies often use contract manufacturing or merchanting arrangements to have their products made in low-cost countries, but they keep the intellectual property rights and income in their Irish subsidiaries.
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| The difference between Ireland's GDP, GNI and modified GNI over the past two decades (image from John O'Brien) |
For example, in June 2023, eurozone industrial production figures showed month-on-month growth of 0.5%. However, this was entirely due to Ireland's 13.1% surge. Excluding "statistical quirks and distortions" in the Irish data, eurozone industrial production would have fallen 0.9% in June.
This is not the first time that Ireland's tax strategies have distorted European economic data. In the three months to June 2023, more than half of the region's 0.3% growth from the previous quarter was due to Ireland's 3.3% expansion in the period.
Analysts and officials are grappling for solutions to this problem. Some have suggested that Eurostat should publish some economic data excluding Ireland "where the impact of the Irish data quirks is the largest". Others are calling for Ireland to change its tax policies.
In the meantime, investors and policymakers should be aware of the impact that Ireland's tax strategies can have on European economic data.
The Irish government has defended its tax policies, arguing that they have helped to attract investment and create jobs in Ireland. However, critics argue that the tax strategies are unfair and that they give multinational companies an unfair advantage over smaller businesses.
The issue of Ireland's tax strategies is likely to continue to be debated for some time.