Key Takeaways From Conversation With Ibec CEO Danny McCoy
Danny McCoy, CEO of Ibec, Ireland’s largest lobby and business representative group, was interviewed by Kevin Kelly, Leader of Clark Hill’s Government and Regulatory Affairs Group. McCoy shared insights that are of high value to business leaders in all industry sectors with operations in the US, the EU, and the UK.
In a Q&A moderated by Kevin Kelly, McCoy discussed key issues, and his comments included:
McCoy recapped what has occurred throughout the Brexit process so far and where the United Kingdom and European Union currently stand with each other.
“The UK leaving Europe has been one of the messiest deals,” McCoy said. “People have been judging the decision to leave on the manner of them leaving as being inelegant and disruptive, and the jury is still out on whether Britain leaving the EU is ultimately going to be successful for Britain.”
McCoy explained that Britain and the EU have only come to an agreement on one of the four fundamental freedoms within the EU: goods, services, capital, and movement of people. He said that on Christmas Eve 2020, there was a trade and cooperation agreement (TCA) for goods, but there has been asymmetric implementation of the agreement for imports and exports, as Britain has not implemented the TCA as agreed with the EU.
“The imports into Britain – the exports of the EU, have basically not changed, are not being monitored, are not under the strict terms of the TCA, whereas on the EU side they have been insisting that the exports from Britain – imports into the EU, would be subject to the TCA,” McCoy said.
The asymmetric implementation of the TCA gets even more complicated and dramatic in the Ireland context, McCoy noted. Ireland has become a flashpoint as Northern Ireland is part of the UK and a decision had to be reached on where the border is. Since the Northern Ireland Protocol does not allow for a hard border, the decision was made to place the border in the Irish Sea.
“The citizens of Northern Island had to go through a border to get their goods from their homeland, Britain,” McCoy explained. “For goods to come into Northern Ireland, there had to be administrative rules, and because Northern Ireland is quite small, a lot of British brands, supermarkets, and companies said the administration was too heavy to serve a really small part of the UK, and they withdrew products. Some of those products might be medicines as well.”
McCoy noted that Britain continues to refuse to invoke the TCA and is pushing the grace periods forward. Britain is now threatening to put the protocol in abeyance by triggering Article 16.
“The EU are beginning to say, we are getting tired of you not implementing the TCA regardless of Ireland,” McCoy said. “The threat is that that if Britain triggers Article 16 then the EU will revoke the TCA, resulting in a really hard Brexit, having a massive effect on business as tariffs and quotas would come back into the trade war.”
McCoy also summarized Ireland’s current economic position as its GDP has doubled over the past six years while many top global businesses have moved in.
“In 2020, unlike other jurisdictions globally as a result of COVID, Ireland’s GDP didn’t go down, it actually went up by 7 percent. In 2021, you’ll see some good growth rates from around the world coming out of the dip. Ireland didn’t dip, and is still expected to grow by another 20 percent this year.”
McCoy remarked that he genuinely believes that the COVID-19 pandemic has gone on much longer than anticipated, and the lasting consequences for businesses are macroeconomic factors.
“We left monetary stimulus in place for far too long,” McCoy said. “We’ve allowed governments to expand support schemes appropriately, but again, in retrospect, for far too long.”
McCoy said the response policies have led to there being too much money in the global system right now, which has led to excess demand and not enough supply. For businesses, especially those in professional services, McCoy said one way in which that has manifested is through the labor market.
“It is just impossible to find the right talent, the right source, and the right quantity right now,” McCoy said. “I think that’s the big legacy of COVID, is that the policy response will be shown to have been way overdone and left in place for way too long.”
Global corporate tax changes
As a lead into the discussion of global corporate tax change issues, McCoy discussed the major shift in how corporations value tangible and intangible assets, which ultimately led to many of the biggest technology companies in the world headquartered and operating in the Republic of Ireland.
“The Republic of Ireland has grown by 100% GDP in six years. As no normal economy should double in six years, something must have happened of significance, which is where the corporate tax phenomenon comes in,” said McCoy. “There has been a shift away from corporations driven by valuations under tangible assets to valuations under intangible assets, such as technology companies. It’s this particular move that has game changed Ireland.”
McCoy further explained that a lot of companies had to leave certain jurisdictions, into the European Union, and chose to land in either the UK or Ireland as two English speaking, common law legal system, EU countries.
McCoy pointed out, “Companies like Pfizer twice attempted to become European. They attempted to become British in 2014 by inverting through Astra Zeneca (part of the COVID story and maybe would not have existed today if this hadn’t happened). Pfizer then attempted to become Irish in 2016 by inverting through Allergan (Botox manufacturer) in Ireland. Neither happened, but this was an exception as Ireland got a lot of the other corporation inversions from 2014 and onwards.”
On recent developments by G20 countries to create a minimum standard corporate tax rate, McCoy said the issue could be settled for a generation if the United States Congress approves the OECD’s proposal.
“If passed by Congress, the fundamental root issue over the past decade will have been settled. The move from tangible to intangible has really driven global governments crazy about trying to capture the technology companies,” McCoy said.
McCoy explained there are two pillars to the proposal. One deals with how to share the money, and the second sets the minimum global rate. He added that of the top 500 companies in the world, this would only impact about 100.
“Its intended target all along has been tech companies. The amount of money raised will be about $150-$180 billion. In the global system, this is not a big amount of money.”
A former environmental economics lecturer at the University of Oxford and the University College London, McCoy said that corporations are working from behind as it relates to climate change.
“I actually think we are at a position where we are in a very dangerous behind zone,” McCoy said. “We’ve done things that we believe to be right, but they’ve been corporately individualistic. The reality is, we’re going to need to have a collective view on how to deal with this problem, because it is a collective problem,” he added.
McCoy said that technology can help in this area, but it will require a lot of adoption and time.
“If you believe the IPCC, the one thing we don’t have is time,” McCoy said. “We’ve wasted a significant amount of time with this problem that’s been knowable for some time, and we have all kinds of reasons for why we didn’t do it,” he added.