Amid Cuts And Tax Hikes, Tech Companies Get Love in Ireland

Ireland is about to become the first European country to emerge from an international bailout in the wake of the financial crisis. Like other European countries, Ireland has been in a period of austerity — higher taxes and more cutbacks.

The nation’s technology sector has been protected, however, as Ireland makes a concerted effort to attract foreign businesses through tax incentives and development programs.

But Ireland’s methods have also been criticized — locally and internationally.

Apple In Ireland

The government’s heavy hand in growing its tech industries has raised some eyebrows around the world. One tech company with offices in Ireland drew the watchful eye of the U.S. Senate earlier this year: Apple.

Apple has been in Ireland for 30 years. But it drew attention in May when it came to light that Apple kept 70 percent of its profits under the umbrella of its Irish subsidiary.

Ireland’s corporate tax rate is 12.5 percent, compared to more than 30 percent in the U.S. Ireland has loopholes that make it possible for companies like Apple to pay almost nothing.

In May, Apple CEO Tim Cook was grilled by Republican Sen. John McCain of Arizona. Cook chafed at accusations that Apple’s offices in Ireland were simply a shell for profits.

“The relationship between Apple and the Irish government is still there today, and we built up a sizable population,” he insisted before McCain jumped in.

“With all due respect,” he told Cook, “given the tax rate that you are paying in Ireland, I’m sure you have a very close relationship.”

In October, in the wake of growing international pressure, Ireland announced it was closing a loophole. Off the record, at least a few company executives told me that it was the low rate that kept them in Ireland.

Grants And Pub Crawls

Yet Ireland’s efforts to draw more tech companies to its shores go beyond tax incentives.

A few weeks ago, the NASDAQ moved its opening bell to Dublin to kick off Web Summit, the largest tech conference in Europe. With financial support from the government, the tech conference brought business leaders and journalists — including me — to Ireland.

Enda Kenny, Ireland’s prime minister, rang the bell. He proclaimed to conference attendees that Ireland is “the most open economy in the Western world. And we celebrate our pro-business ethos and environment without hesitation.”

Tech entrepreneurs say Ireland’s low tax rate is just one item on an appealing checklist that includes an army of Irish officials ready to help foreign companies set up — usually with Ireland’s Industrial Development Agency, or IDA.

“Our engineers, they love them because they take them out for whiskey crawls and pub crawls and these different things,” says Mikkel Svane, the CEO of customer-support software company Zendesk.

Zendesk has its headquarters in San Francisco, and it just chose Ireland to be its European headquarters.

“There’s just a lot of experience here because they have attracted over the years so many tech companies,” Svane says. “They have the machine rolling, and they’re prepared for companies like us. They know what we need.”

Barry O’Dowd, head of the IDA’s emerging business division, spoke with me while taking some American entrepreneurs on a pub crawl.

“We help the companies when they’re here, and we get them sort of locked into the economy,” O’Dowd says. “We work with them on [research and development] agendas, for instance. We’ve got a grant and aid support program where we can give them support financially.”

According to O’Dowd, the development agency’s recent efforts to attract newer companies, like Zendesk, have created between 2,000 and 3,000 new positions. O’Dowd says the companies’ presence helps spawn other local jobs — although two-thirds of the jobs by foreign firms go to people who aren’t Irish.

Investment From Silicon Valley

Ireland competes with other European countries to draw tech investment: Amsterdam, Berlin, London. But Jennifer Schenker, editor-in-chief at Informilo — a magazine that covers the global tech industry — says Ireland stands out.

“They are, bar none, the most proactive government in Europe in trying to attract tech companies of all sizes,” she says.

But beyond that, she says, Ireland is creating an ecosystem. The country’s workforce is highly educated and young — 50 percent of the population is under 35. Young Irish techies often start work at a foreign company and then leave to do their own start-up.

“Some of Silicon Valley’s most famous angel investors are investing in very early-stage companies based in Dublin that have been founded by Irish entrepreneurs,” she says.

Certainly the country hopes that, someday, a company the size of Google or Apple will emerge from its startup scene.

But Chris Horn, an Irish former entrepreneur-turned-angel investor, says homegrown businesses face a steeper tax bill than foreign ones. If a company goes public, Irish entrepreneurs face a capital gains rate of more 30 percent on their profits.

“And what drives places like Silicon Valley and indeed Boston and New York,” he says, “is the growth of companies and then their sale and then the reinvestment of those profits and proceeds into the next companies.”

Still, despite the criticism, Irish officials say the combination of low tax rates and government support is building a tech industry that’s helping to lift it out of the economic doldrums.

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