The European Commission’s accusation that Apple paid a mere 0.005% on their 2014 European profits outraged Apple CEO Tim Cook and intrigued many Americans enough to turn their attention towards a highly controversial piece of Ireland’s economic policy decisions: their 12.5% Corporate Tax Rate. The accusation brought with it criticisms from both Apple and Ireland, the latter who was instructed by the EU to collect up to 13 billion euros in back taxes from the corporation. Ireland has been fighting this ruling vehemently as they see it as something that could set a precedent for attacks towards the corporate tax rate, which is seen as their competitive advantage against the rest of the EU and the world. To understand Ireland’s defense of Apple, one must better understand the way the 12.5% tax rate has helped to bring Ireland to the forefront of the global economy.

As Dan O’Brien points out, the 12.5% corporate tax rate is “important for Ireland’s economic model” and helped to transform “a country of poor farmers into a wealthy knowledge economy.” This low tax rate is responsible for growing Ireland’s economy an astounding 26% in 2015, when the country would have experienced a modest 3% domestic GDP growth rate otherwise. The corporate tax rate has attracted multinationals from around the world who “provide a fifth of private-sector jobs” and “produce 14% of tax revenues, well above the OECD average of 8%.” This is in comparison to larger EU economies such as Germany, France, and Italy which all feature corporate tax rates of nearly 30% or higher, or the US corporate tax rate of 40%. This niche economic model has allowed corporations to claim their headquarters in Ireland and take advantage of lower taxes. As a result, larger EU economies look less attractive by comparison and it makes sense why the EU would come after Ireland – and why Ireland would fervently “pursue it through the courts to the bitter end.”

The EU is not the only one that seems to be coming after Ireland for its fiscal policy choice. Hillary Clinton criticized the merger of US-based Johnson Controls and Cork-based Tyco International, calling the move a “perversion” during her campaign in February. Clinton and other politicians have frequently criticized corporations for “tax dodging” by incorporating in tax-havens such as Ireland and the Cayman Islands. The flight of corporate profits from the US to overseas locations has fueled the criticism of US tax rates as well, and has led to the current conversation over the GOP Tax Reform plan under President Trump, which may see the US corporate tax rate cut in half – or more.

While the rest of the world maneuvers to make their economies competitive relative to Ireland, the country should continue to fight the EU’s ruling and continue to maintain this aspect of their fiscal policy. The corporate tax rate has been an incredible leap forward for their economy, and has helped to push Ireland to the forefront of global commerce. While the US and others may slash their tax rates to remain competitive, and the EU may continue to badger Ireland over collection of supposed back taxes, Ireland should continue to maintain the status quo as it has done wonders for the Celtic Tiger – a term given to Ireland’s economy following its rapid growth in the 1990s and early 2000s as a result of heightened foreign direct investment. It’s important to note that Ireland is not the only country with a comparatively low corporate tax rate – countries such as Cyprus, Bulgaria, and Lithuania feature similarly low tax rates. What makes Ireland different is the combination of the corporate tax rate in conjunction with a relatively well-educated population whose national language is English, and who is geographically both isolated from the rest of the EU and close enough to act as a hub for travel across the continent. The move will continue to draw criticism from larger economies but this corporate tax rate is Ireland’s method at attracting international investment and drawing the attention of businesses globally. At the end of the day, Ireland cannot be faulted for taking dramatic measures to make their economy more attractive.

The Irish Corporate Tax Rate