Posted on 6 months ago by Laurentina Kennedy
Ireland bullish on life science investment despite higher tax rate
IDA believes State’s still modest tax rate, political stability and skill base will attract pharma and medical companies
The decision to keep its borders open while competitors erected trade barriers during Covid helped the IDA win two life science investments initially destined for the US and China. Photograph: Getty Images
A surge in life sciences investment that helped make Ireland the EU’s top performing economy in the past two years will continue despite a rise in the corporate tax rate to 15 per cent, the State’s investment chief said.
Michael Lohan said Ireland was poised to win several big investments from pharmaceutical and medical device companies attracted to the State’s blend of tax incentives, political stability, skilled workforce and EU membership.
“As uncertainty continues around the globe, Ireland’s certainty has become more attractive. People are seeking those islands of tranquillity, and Ireland is one of those,” Mr Lohan, chief executive of IDA Ireland, said.
The number of people employed in life sciences in Ireland has surged by 80 per cent to almost 100,000 over the past decade on the back of almost $15 billion (€13.9 billion) in capital investment in the sector. Last year a record 301,475 people worked at multinationals, which paid 86 per cent of all corporate taxes received.
Ireland has built its record as being one of the EU’s largest recipients of foreign direct investment on its attractive headline corporate tax rate of 12.5 per cent, but Mr Lohan is the confident that the rise to 15 per cent in January for all companies that generate $750 million or more in annual revenues is “not making a marked difference in terms of investment decisions”.
But as countries such as the US pursue a “reshoring” manufacturing policy and consider tax incentives for pharma companies, analysts and investors warn that the wider OECD-led shake-up of corporate tax rules, as well as housing and energy shortages, could dent Dublin’s ability to attract multinationals.
“The key challenge for Ireland is addressing infrastructure constraints and other bottlenecks such as housing which are raising the costs for foreign investors,” said Conall Mac Coille, economist at Davy.
A downturn in the technology sector that is spurring job losses at Meta, X (formerly Twitter) and Accenture, all of which have operations in Ireland, has added to concerns about its competitiveness.
A second tranche of tax reforms called Pillar One, which are being overseen by the Paris-based OECD, would result in a portion of taxable profits generated by large multinationals being reassigned from Ireland to other markets. The change reflects how modern businesses can make profits in foreign markets without necessarily having a physical presence there.
Brad Setser, a senior fellow at the Council on Foreign Relations in Washington, said that the Pillar One reforms, and uncertainty over whether the US and other countries will implement the agreement, were the main threats to Ireland.
The OECD is hoping that the measure can come into force in 2025 but a failure by Washington to sign up to a global agreement, which looks likely as many Republicans in Congress remain opposed to it, could create trade tensions and complicate FDI decisions for US multinationals, Mr Setser said.
For now, most investors are playing down the risks, suggesting that access to skills and support services in Ireland are more important than tax reforms. Mr Mac Coille also noted that Ireland would maintain a corporate tax advantage over its rivals, including Britain, which in April raised its rate from 19 to 25 per cent. European OECD countries levy an average corporate rate of 21.5 per cent, according to the Tax Foundation think-tank.
Ireland-based life science companies have tripled R&D spending, as they undertake higher value activities, including manufacturing of complex biologic medicines. Since December, the pace of investment has picked up, with Eli Lilly, Pfizer and AstraZeneca ploughing more than $2 billion into manufacturing plants in Ireland, which is one of the world’s largest exporters of medicines.
Japanese drug maker Takeda made its first investment in Ireland a quarter of a century ago when corporate tax was 10 per cent. It now employs 1,000 people and last year opened the State’s first cell therapy manufacturing plant.
“People and talent are key. The academic institutions are really important,” said Shane Ryan, general manager Ireland at Takeda.
Ireland has the highest level of per capita Stem (science, technology, engineering and maths) graduates in the EU, according to the Central Statistics Office. Ireland’s EU membership is another factor because it provides access to a broader European workforce, said Mr Ryan, adding that Takeda employs 43 nationalities across its four Irish sites.
Takeda is one of several life sciences companies which collaborate with Ireland’s National Institute for Bioprocessing Research and Training (Nibrt), an academic centre that provides training and research aimed at expanding the biopharma manufacturing industry.
Almost 5,000 people train at the centre every year, including staff from the FDA and other global regulators.
Matt Moran, director of BioPharmaChem Ireland, an industry group, said that Nibrt highlighted the benefits of close collaboration between pro-enterprise Irish governments, academia and industry.
“Compliance and regulation is very good. Many of these plants are approved by the US Food and Drug Administration,” Mr Moran said.
Initial Irish investments by Pfizer and Bristol Myers Squibb more than a half century ago encouraged other multinationals to follow, he said. Ireland is now a manufacturing centre for some of the world’s top-selling drugs, including MSD’s cancer therapy Keytruda and Pfizer’s Covid-19 vaccine.
Mr Moran said competition for life sciences investment from the US was becoming more intense following a US push to “reshore” manufacturing, a key plank of President Joe Biden’s economic programme.
“Ireland was a bit of a no-brainer [for new investment]. Now companies look at US states as well – so we just need to be better,” Mr Moran said.
The pharmaceutical industry is focusing on the resilience of supply chains following recent disruptions caused by the pandemic and a spate of drug shortages linked to manufacturing problems in India and the US.
The IDA said this trend was benefiting Ireland, which manufactures everything from drug ingredients to tablets and more complex biological medicines.
Dublin’s decision to keep its borders open and facilitate exports of life-saving drugs while competitors erected trade barriers during the coronavirus pandemic helped the IDA win two life science investments initially destined for the US and China, the agency said.“We have benefited from the more conservative approach to managing the supply chain,” said Rory Mullen, head of biopharma and food at the IDA. “Covid has changed that decision-making process.” – Copyright The Financial Times Limited 2023