The old tobacco factory in Mullingar smoked Ireland and part of Europe for half a century. Owned by the Imperial Tobacco Group, a former British monopoly with Victorian airs, those ships were a hotbed of machines that made cigarettes and packaged them. Today the facilities are the headquarters of a technological development center.
The IMR (Irish Manufacturing Research) of Mullingar, west of Dublin, opened in 2017. Where previously there were presses and stuffers are now the most advanced 3D printers on the market, working with polymers and metal. Packaging machines have been replaced by robotic arms and virtual reality devices. The center works directly with the industry – more closely with the medical and aerospace sector – and is geared towards real business problems.
It is a sample of the efforts that Ireland has made in recent years to create a dynamic technological ecosystem. A mission that has accelerated after the United Kingdom’s exit from the European Union was approved by referendum in June 2016. The country of clover is probably the most exposed to Brexit (postponed for the umpteenth time). Trade between the two nations is 1,000 million euros per week. Ireland, which is a small market of 4.7 million inhabitants, sees an extension of its domestic market in the United Kingdom. Around 15% of its exports go to its British neighbor.
To mitigate the consequences of an uncertain Brexit, one of the antidotes prepared by Ireland is in its technology sector and in its startups. Its entrepreneurial ecosystem is one of the most vitalist in Europe. An analysis of the financial company Funderbeam indicates that there are 34 emerging companies per 100,000 inhabitants in the country, the second largest proportion after that of Iceland. In 2018, 930 million euros were invested in 223 Irish startups, according to the TechIreland association. In a specific report, export authorities from the Netherlands Ministry of Economy spoke of 2,500 firms in Dublin alone, 165 development and acceleration centers and more than 1,200 business projects created in 2017.
“Traditionally, startups, regardless of the sector, sell in the domestic market. And the Irish domestic market is very small, ”says John FitzGerald, Professor of Economics at Trinity College in Dublin. “Then they start selling in the British market, because we have the same language and there is very good communication. But this is going to be more difficult with Brexit. So they will need to jump to the European market as the first destination for their exports. ”
A representative sample of these local companies is under the umbrella of Enterprise Ireland, the country’s export agency. Its objective is to create wealth and employment nationwide through the expansion of national companies. And it has also been prepared for Brexit. To the 33 offices that it has worldwide, 14 new ones will be added in the next 18 months. They will serve to complete their presence in France, Germany or Denmark, but also in markets outside the EU, such as the United States or Vietnam.
In 2018 Enterprise Ireland approved a budget of 74 million as a contingency against Brexit, which is intended for 535 companies considered exposed. The objective of this plan is “to improve competitiveness, innovation and diversification”. These types of movements highlight the country’s planning in the face of the situation. “The government obviously does not know what the final result will be. But it began to prepare for this long ago,” says FitzGerald. “The Economic and Social Research Institute (Dublin-based analyst entity) published a report in November 2015, commissioned by the Ministry of Finance, about the consequences for Ireland of a Brexit. This was six months before the referendum. So preparations have begun to be made very soon. ”
The European Commission cited the governments of Ireland, the Netherlands and Austria as examples of member states that had established advanced contingency plans against Brexit. Alberto Cisterna, responsible for the Irish export agency in Spain, is blunt in stating that “there is nothing positive about leaving the United Kingdom.” But trust this to be a push for Irish companies to jump beyond the British market. “One of the answers given to Brexit is the diversification to the Eurozone, which can mitigate many of the risks.” Cistern recalls the advantages of the European market. “It is a population of 340 million inhabitants, with stability, with a single currency and free of tariffs.”
Professor FitzGerald is confident that over time the European market will compensate for Brexit’s difficulties: “At first it will be a great blow to Ireland. And we will see a certain recovery when foreign companies invest in Ireland instead of the United Kingdom. ”
Spain as a market for Irish companies
Cisterna says that the most desired destinations by Irish companies from now on are North America and the Eurozone. Their agency set a goal for Europe: they want the total number of companies they support between 2016 and 2020, including startups, to increase their exports to the EU by 50%.
Within this Eurozone promotion, Spain is attractive to the Irish entrepreneurial ecosystem due to affinity in economic sectors. “Spain has a fundamental role, as a market of 47 million people,” says Cisterna. “We see opportunities within digital technologies, within fintech, because there are large banks in Spain and they are also those that adopt technology early. And we also see important opportunities within the agriculture and livestock sector, where Ireland has focused on efficiency, one of the sector’s challenges. ”
Many Irish startups that already operate in Spain are related to these sectors. MooCall manufactures a birth sensor for cows, which notifies the farmer by email or sms when they go into labor, in order to reduce the mortality of the animals. Cybersecurity specialist Fijowave contacted Telefónica in 2017 and has an agreement with ElevenPaths, the operator’s security division. In the banking sector, the provider of virtual prepaid cards, PFS, can be used without a bank account. Other companies are framed in the medtech (medicine) and traveltech (tourism) sectors, such as the CarTrawler rental car search engine, which provides services to tourism companies, such as hotels or airlines.
Several of the cases mentioned have entered Spain or have increased their presence in the last three years, since the referendum. Although Alberto says they are casual circumstances because the work comes from before. He says the Irish government has been committed to “programs to create startups and help them to have an export ambition, so that they can later diversify into multiple markets.”
The taxation of large technology companies
Ireland is the third best country in Europe for the development of startups, according to the ranking of the analyst firm NimbleFins. And one of the factors that influences this benign climate with new businesses is its low corporate tax of 12.5%. This tax rate not only facilitates start-ups for new companies, it is also an attraction factor for large technology companies and has been a substantial source of controversy in Brussels. The city of Dublin is smoky with the headquarters of Facebook, Google, Microsoft, Paypal, eBay or Intel. This tax regime, which is also practiced by other EU members such as Luxembourg or the Netherlands, is aimed at attracting capital and stimulating the local economy.
“There has always been a covert tax competition between the different member states of the European Union,” explains José Manuel Almudí Cid, professor of Financial and Tax Law at the Complutense University of Madrid, and adds that the member states are sovereign to configure their own corporate taxes. “What they cannot do is to establish selective measures aimed at attracting certain companies, because it would constitute state aid and harm the internal market.”
This type of measure relates to the fine of 14,300 million euros that Brussels forced Apple to pay to Ireland. “It was a custom taxation agreed by the tax authorities,” highlights Almudí. “On paper, states comply with EU law, but then they move away to attract companies and bring capital through these decisions, which have been opaque.”
The debate on technology taxation, however, is more complex. “The rules that have governed international taxation in recent years have proven ineffective in recording the benefits of these technological multinationals, which have a great capacity for relocation and can provide their services with very limited means,” Almudí said.
The problem has caused the reaction of institutions such as the OECD or the G20, in order to modify the rules of international taxation. For now there is no effective solution. The issue will continue to be discussed within the European Union, the market to which Ireland turns its eyes to mitigate the effects of Brexit.
Also published on Medium.