First Puerto Rico, Now Ireland? Where (Or When) Will Merck Need To Move Its Tax-Haven Operations?

The Financial Times has a solid piece out, tonight -- on the burgeoning political pressure inside Ireland -- to increase the corporate tax rate on non-Irish corporate profits earned there. Just like many multinational pharma and device companies, Merck does a substantial amount of manufacturing, and EU region financial consolidation in Ireland -- in order to take advantage of the 12 percent tax rates on corporate profits there.

Given that the Irish have just seen a sharp drop in the internal minimum wage (legislated as part of the pending EU debt bailout), pressure is bound to increase, from a populist point of view, on the foreign corporates' tax rates. Here is a bit of the item -- but do go read it all:

. . . .Neil Boyle, the managing director of MSD Ireland, part of Merck, another US-owned pharmaceutical company, said it was vital for the government to retain an “indefatigable” focus on international competitiveness if it was to steer the Irish economy out of the crisis.

[Editor's Note: I might point out that in late 2009, and early fall 2010, MSD closed two facilities: Wicklow/Bray, Ireland, and Brinny/West Cork, Ireland -- thus laying off an aggregate of 400 highly-trained, competitive workers-- so it is rather ironic to hear this sort of speechifyin' from the MSD mouthpiece there.]

“The corporation tax rate is a signal in terms of the government having a positive agenda for inward investment,” he said.

The combination of low corporate taxes, a well educated English-speaking workforce, access to the markets of the European Union, relatively low costs before the boom, and a welcoming political climate made Ireland an exceptionally attractive location for US companies in particular. The US accounted for more than half of all the inward investment into Ireland over the past five years, according to Ernst & Young. . . .

If the increase in tax-rates for foreign-domicile corporations persists in Puerto Rico (Law 154 is scheduled to take effect January 1, 2011 -- if not amended or rescinded), and if Ireland's own workforce demands a foreign domicile corporate tax increase, in return for the forced reduction of minimum wages there, Merck will begin to run out of tax-haven jurisdictions for its manufacturing and financial clearing operations. We'll keep you posted.