Ireland Is Launching a Sovereign Wealth Fund

Even tax havens can generate enough taxes to support a sovereign wealth fund. At least, when they’re havens for the world’s biggest companies.

On Tuesday, Ireland — home of some of the lowest corporate tax rates in the West and, ergo, the tax home of some of the world’s largest tech and pharma players — said it’s leveraging its corporate tax revenue to create a sovereign wealth fund.

Buck of the Irish

Much to the chagrin of its economic allies and neighbors, Ireland has maintained ultra-low corporate tax rates for about a quarter-century. The result: Google and roughly 950 other US corporations use the Emerald Isle as their international headquarters, according to the American Chamber of Commerce Ireland. In fact, so many multinationals call the country home that major earnings swings are enough to tip the EU writ large in or out of a recession.

Unsurprisingly, that’s been a boon for the Irish government and its population of 5.1 million citizens — and now it’s putting the windfall to good use:

• In 2021, 21% of Irish tax revenue stemmed from taxes on corporate profits, according to a Wall Street Journal analysis, versus just 5.3% in the US. Its annual corporate tax income has tripled to roughly $24 billion in the past eight years.
• Last year alone, that resulted in a government budget surplus of nearly $8.5 billion. Finance Minister Michael McGrath says he will introduce laws to redirect 0.8% of nominal GDP per year into the fund, dubbed the Future Ireland Fund, which could grow to more than $100 billion by 2035, assuming a return rate of around 4%.

Scorned in the USA: Ireland’s open-arms policy isn’t too popular with US policymakers desperate to capture more tax revenue from ostensibly American companies. Brad Setser, a senior fellow at the Council on Foreign Relations, told the WSJ that as much as $15 billion in tax revenue is lost every year to Ireland from the lack of “a sane system.” Meanwhile, a recent University of Michigan paper estimates that US businesses redirected as much as $1.4 trillion between 1998 and 2018 via the “Double Irish” tax loophole. That’s quite the pot of gold at the other end of the rainbow.