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Summary:

Twitter’s decision to open an office in Dublin has prompted an Irish government agency to crow about “Ireland’s dynamic digital media cluste…

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Twitter’s decision to open an office in Dublin has prompted an Irish government agency to crow about “Ireland’s dynamic digital media cluster.” This is great publicity for Ireland to be sure, but it’s also a pretty safe bet that the Twitter arrival will bring accountants, not engineers, to the Celtic shore.

Ireland has lots of virtues, but a history of innovation isn’t one of them. In fact, it has one of the poorest innovation records in the world as reflected by statistics like its proportionate share of worldwide patents. Its recent success in attracting the darlings of Silicon Valley has nothing to do with “dynamic digital media” and everything to do with the less-glamorous world of corporate accounting.

Ireland has been aggressive at luring foreign multinationals with its tax policies. These include special provisions for intellectual property royalties as well as Europe’s lowest corporate tax rate — just 12.5 percent compared to 34 percent in France and Belgium

The Irish tax system is especially appealing to companies like Twitter whose sales do not come from physical goods. Twitter likely intends to copy Google (NSDQ: GOOG) and other companies that employ strategies like the “Double Irish” and “The Dutch Sandwich” to reduce their overseas tax bill. The technique, first reported by Bloomberg, involves creating an Irish subsidiary to control foreign licensing revenue. The subsidiary in turn pays large fees to a “management” unit in Bermuda by way of a Dutch flow-through company. The scheme, combined with Ireland’s already low corporate tax rate, allowed Google to report pre-tax profits of less than 1 percent of sales in 2008.

There seems to be no reason why Twitter couldn’t establish a similar model which, for now, is legal under tax law. Twitter’s Dublin office could, say, pay an offshore entity to “manage” the overseas revenue stream it collects from sponsored tweets.

In response to an email from paidContent, a spokesperson for the company declined to elaborate on the reasons for the decision and instead provided the following statement: “The Twitter office in Dublin, our third location outside of the U.S., is a great next step in the company’s global expansion.” In addition to its home office in San Francisco, Twitter also has an office in London which it is staffing with sales and marketing personnel. The role of the London office is perhaps another sign that the Dublin office will be focusing more on tax than tweeting.

If the Dublin move is indeed about tax law, the Ireland business agency’s early morning tweet that “Ireland is trending” is perhaps a bit overstated. But even the arrival of a passel of accountants will no doubt be welcome in recession-racked Ireland.

  1. Why shouldn’t Ireland “crow”? When Google first opened it’s Irish base it had just 200 employees – now it has 2200. PayPal employs about 1,300 staff there while eBay has about 1,000 staff there. That’s a lot of accountants by any estimation wouldn’t you say?

    Yes the corporate tax incentives and policies in Ireland are hugely attractive to multi-national new media corporations like Twitter but those same legal tax policies were costly and hard fought for by the Irish even in the face of their recent humiliating Euro bailout. 

    Ireland is finding its feet and learning from its recent mistakes but it’s not feeling sorry for itself. It has enormous debt but it’s using whatever tools are at its disposal to attract and retain inward investment, just like any other country would. Your view from afar makes no mention of these successes and the good work done to bring them about. You accuse Ireland of not having a history of innovation but belittle it with faint praise in its attempts to establish itself as a genuine hub for new media and technology companies outside of the similarly “recession-racked” USA. 

    I’m not saying your article doesn’t have a point, it would just be nice if it was more balanced and less lazy in its stereotypical patronising of the Irish.  

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  2. BM, you make convincing points and state them forcefully. My intention was not to patronize the Irish or to make light of the country’s efforts to push back against economic troubles.

    I wanted to note instead that politicians’ eagerness to embrace fashionable technology companies can lead them to obscure the exact nature of the partnership. But, as you point out, the underlying accomplishment is the same — attracting top companies that create thousands of jobs. So on this front, kudos to Ireland.

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  3. “Ireland has lots of virtues, but a history of innovation isn’t one of them. In fact, it has one of the poorest innovation records in the world as reflected by statistics like its proportionate share of worldwide patents.”Think you need to check your statistics again my man. Last time I checked there was more than 17 countries in the world. Your link also points to the share of total patents as opposed to the proportional share (http://www.conferenceboard.ca/HCP/Details/innovation/patents-by-population.aspx). I think you’ll find that Ireland (15th) is not very far behind the UK (13th). You also need to take into account the range of industries in each countries. Smaller countries like Ireland tend to have to focus on specific industries and simply can’t cover the larger range of industries available in larger countries. Therefore these statistics are obviously not comparing like with like. If you have more industries it follows that you will have more patents. To get a real comparison you would have to do a whole range of comparisons such as comparing countries industry by industry or comparing the value to the economy of each patent etc…To use the statistics you provided as evidence that Ireland has no history of innovation is ridiculous and you are simply being selective in how you present the information to suit the objective of your article. I think you will find that innovation is alive and well in Ireland.

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  4. Here are examples of British innovation in relation to tax: The Isle of Man , The Channel Islands, The British Virgin Islands, Gibralter.  Kettle / Black ETC

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