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Thu December 12, 2013
All Tech Considered

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

Originally published on Thu December 12, 2013 7:47 am

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.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

Ireland is about to become the first country to emerge from an international bailout - led by the European Union - in the wake of the financial crisis they're. Like other European countries, Ireland has been in a period of austerity - higher taxes and cutbacks. But one sector of the economy was protected through all of that, and that was the nation's technology industry.

NPR's Laura Sydell reports.

LAURA SYDELL, BYLINE: One tech company with offices in Ireland made big headlines earlier this year: Apple.

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

In May, Apple CEO Tim Cook was grilled by Senator John McCain.

TIM COOK: The relationship between Apple and the Irish government is still there today, and we built up a sizable population.

SENATOR JOHN MCCAIN: With all due respect, given the tax rate that you are paying in Ireland, I'm sure you have a very close relationship.

SYDELL: Ireland's corporate tax rate is 12 and a half percent, as compared to over 30 percent in the U.S., and Irish policy has loopholes that make it possible for companies like Apple to pay almost nothing.

Ireland is doing everything it can to let the tech companies of the world know it's open for business.

(SOUNDBITE OF MUSIC, BELLS RINGING, AND CHEERING)

SYDELL: That's the NASDAQ opening bell, which was rung in Dublin to kick off the largest tech conference in Europe. And the person ringing that bell is Enda Kenny, Ireland's prime minister.

PRIME MINISTER ENDA KENNY: We are the most open economy in the Western world. And we celebrate our pro-business ethos and environment without hesitation.

SYDELL: With financial support from the government, the tech conference brought together business leaders and journalists - including me - to Ireland.

If you ask tech entrepreneurs if it's Ireland's low tax rate that brings them here, on the record they say it's just one item on a checklist which includes an army of Irish officials ready to help startups.

MIKKEL SVANE: Our engineers, they love them because they take them out for whiskey crawls and pub crawls and all these different things.

SYDELL: That's Mikkel Svane, the CEO of Zendesk, a startup with its home office in San Francisco. Zendesk makes software that helps companies with customer support Svane says Zendesk just shows Ireland to be its European headquarters.

SVANE: And there's just a lot of like experience here because they have attracted, over the years, so many tech companies. So they have the machine rolling, and they're prepared for companies like us. They know what we need.

SYDELL: The people who know what Svane needs are usually with Ireland's industrial development agency or IDA. The IDA helps foreign companies set up in Ireland. Barry O'Dowd heads its emerging business division. He spoke with me, surprise, while taking some American entrepreneurs on a pub crawl.

BARRY O'DOWD: We help the companies when they're here, and we get them sort of locked into the economy. So we work with them on R&D agendas, for instance. We've got a grant and aid support program where we can give them support financially.

SYDELL: Though two-thirds of the hires by foreign firms go to people who are not Irish. O'Dowd says the company's presence there helps spawn other local jobs. According to O'Dowd, IDA's recent efforts to attract newer companies, like Zendesk, have created between 2,000 and 3,000 new positions.

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

JENNIFER SCHENKER: I would say that they are, bar none, the most proactive government in Europe in trying to attract tech companies of all sizes here to Ireland.

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

SCHENKER: And this is unique to all of Europe. 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.

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

But one critic of the government is a former entrepreneur turned angel investor, Chris Horn. He says homegrown businesses face a steeper tax bill than foreign ones. If a company goes public, Irish entrepreneurs pay a capital gains rate of over 30 percent on their profits.

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

SYDELL: Meanwhile, in the wake of growing international pressure to raise its corporate tax rate, the Irish government closed a loophole. But experts say it won't affect big companies like Apple. And executives at at least a few companies told me off the record that it was the low tax rate that kept them in Ireland.

and while other countries in cities around the world may criticize the Irish, it's 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.

Laura Sydell, NPR News. Transcript provided by NPR, Copyright NPR.

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