Why US companies care about Ireland
The nation is under intense pressure to raise its corporate tax rate, and US companies are worried.
Companies have long made Ireland a home away from home, funneling revenue and profits through the country because of its tax structure. Ireland's 12.5% corporate tax rate is the lowest in the eurozone.
The question now is whether Ireland can afford to keep that tax rate so low. With the country accepting a bailout package of more than $100 million, its credit rating, at Aa2, faces a "multi-notch downgrade," Moody's Investors Service said.
The bailout will help Ireland's struggling banks and stabilize the economy. But the rescue has also triggered political chaos, with one party pulling out of the government and calling for early elections.
In the middle of all of this is growing pressure on Ireland to increase its corporate tax rate. French President Nicholas Sarkozy went so far to say that he expects it. Post continues after video:
"It's obvious that when confronted with a situation like this, there are two levers to use: spending and revenues," Sarkozy said, according to The Telegraph. He added that he couldn't imagine Ireland not raising taxes.
U.S. executives are jumping into the mix as well, reminding Ireland that raising corporate taxes could mean trouble. "Anything that impinges on Ireland's competitiveness is going to be a big thing for Google," the head of Google's European headquarters in Dublin told The Belfast Telegraph.
Google (GOOG) has cut taxes by $3.1 billion in three years and lowered its overseas tax rate to a jaw-dropping 2.4%, mainly by taking advantage of Ireland's tax policies.
Other companies are sounding a warning as well, including Microsoft (MSFT), Hewlett-Packard (HPQ), Intel (INTC) and Bank of America (BAC). (Microsoft owns and publishes MSN Money.)
A letter co-written by executives from the four companies discussed the "damaging impact" that a tax rate hike could have on Ireland's ability to "win and retain investment," the Telegraph reports.
So far, Ireland is resisting the pressure to raise corporate taxes. But other European countries that have lost out to Ireland in luring big business are not happy about that, and they reportedly pushed for a tax increase in return for a bailout.
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