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Read the information supplied and answer the question which follows - Leaving Cert Business - Question 3(A) - 2018
Question 3(A)
Read the information supplied and answer the question which follows. "Ireland has failed to collect €13 billion in tax due from Apple." Evaluate the opportunities ... show full transcript
Worked Solution & Example Answer:Read the information supplied and answer the question which follows - Leaving Cert Business - Question 3(A) - 2018
Step 1
Evaluate the opportunities for the Irish economy of foreign multinationals (MNCs)
Answer
Foreign multinationals provide several opportunities to the Irish economy:
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Direct Employment: MNCs like Apple and Google employ highly skilled graduates, which helps prevent a 'brain drain' from the country. Many graduates in R&D contribute to a vital area of business.
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Tax Revenue for the Government: MNCs contribute significantly to the government’s tax revenue, with a standardized 12.5% corporate tax rate designed to attract foreign direct investment (FDI).
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Positive Spill-off Effects: The presence of MNCs benefits local firms by promoting knowledge sharing and partnerships. Domestic companies can learn from the practices of larger multinationals, fostering local entrepreneurship and development.
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Enhancement of Ireland's Reputation: Firms such as Intel enhance Ireland’s reputation as a hub for international business, attracting further FDI and signaling stability and opportunity in the entrepreneurial environment.
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Knowledge Transfer and Expertise: Irish employees benefit from learning best practices and technology innovations brought by MNCs, fostering an entrepreneurial spirit within the local business landscape.
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Positive Impact on the Balance of Trade: MNCs may also produce export-ready products, improving the overall trade balance through increased exports.
Step 2
Evaluate the challenges for the Irish economy of foreign multinationals (MNCs)
Answer
Despite the advantages, there are notable challenges posed by MNCs in Ireland:
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Access to International Markets: High-tech companies have a competitive edge in international markets. However, some MNCs are 'footloose' and may easily relocate operations to countries with lower costs, impacting the Irish economy.
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Repatriation of Profits: Earnings from MNC operations may be channeled back to the home countries, limiting their positive impact on the Irish economy.
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Tax Avoidance Schemes: Strategies similar to those used by Apple result in significant losses for the Irish government, undermining the expected tax benefits of hosting these businesses.
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Brexit Implications: The departure of the UK from the EU may push multinationals to reassess their strategies in Ireland, potentially seeking new locations within the UK that might offer different benefits.
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Dependence on a Small Number of Multinationals: A heavy reliance on a few large companies for tax revenue could lead to severe fiscal repercussions should they choose to relocate or downsize.
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Domestic Competition: Local businesses may find it difficult to compete against well-established multinationals, which can lead to a monopolistic market structure and increased prices for consumers.