Ireland and its good treatment of multinationals destroy Europe's economic statistics

BarcelonaThe large presence of multinationals – particularly, North American pharmaceutical companies – in Ireland's economy inflates the country's weight compared to its European Union partners, to the point that the adaptation of these companies to the tariffs imposed by the United States government has led the entire European economy to register negative growth rates in the first quarter of this year.

Specifically, the gross domestic product (GDP, the indicator that measures economic activity) of the EU closed the first quarter with a decrease of 0.1%, according to data from Eurostat, the community statistical agency. The economy of the 27 member states had been growing at a positive rate since the fourth quarter of 2022, the last quarter that closed with a reduction in economic activity.

The previous forecasts for the first three months of this year, however, did not point to a decline in the EU's GDP, but rather stated that the positive trend initiated in 2023 would continue. The reason is precisely the excessive weight of Ireland on the GDP of the EU as a whole: although, with around 5.8 million inhabitants, the Republic of Ireland represents approximately 1.2% of the EU's population, its GDP is between 3% and 4% of the Union's total.

This high weight of the Irish economy in Europe is due to the presence of a large number of foreign multinationals (mainly from the US, but also British and from other countries) which are headquartered in Dublin for tax reasons: Ireland maintains a corporate tax rate of 12.5% on business profits, the lowest in the EU and significantly lower than that of most industrialized countries, which have it around or above 20%.

Among these multinational companies established in Ireland, pharmaceuticals stand out the most. Companies such as the American Pfizer and Eli Lilly, the British AstraZeneca and GlaxoSmithKline, the Swiss Novartis, or the Danish Novo Nordisk take advantage of a legal loophole in a US law introduced in 2017 by the first administration of President Donald Trump, designed to reduce tax pressure in the US.

This law provides for the creation of a tax called the Global Intangible Low-Taxed Income Tax, or GILTI Tax (GILTI is pronounced like guilty, which in English means "culpable"), intended, at least in theory, for US multinationals with a foreign presence not to evade taxes through tax havens. However, a series of loopholes in the wording and exemptions to the tax ended up making a pharmaceutical company have to pay 10.5% of profits if it maintained operations abroad, but a 21% corporate tax if it remained in the US.

This led to pharmaceutical multinationals exporting to the United States (the world's largest market for healthcare products) remaining in Ireland. Thus, what they do is create a company in Irish territory and sell their products to the group's subsidiaries in other countries, including the US. The Irish subsidiary pays a 12.5% corporate tax, and the rest of the subsidiaries pay nothing or almost nothing, as they have very small profits or, directly, losses. In the case of the US, they pay the GILTI Tax.

Starting from the entry into force of the new law in 2017, Ireland's pharmaceutical exports to the United States have almost quadrupled, from around $30 billion to over $110 billion last year.

Tariffs have a negative impact

Precisely in January 2025, furthermore, pharmaceutical companies accelerated the pace of drug sales from Ireland to the US, given the possibility that Trump would impose heavy tariffs on medicines manufactured in the European Union. This rise in pharmaceutical exports served to increase companies' stock in the US before customs tariffs came into effect, and this was clearly reflected in the figures for Irish GDP, which grew at a much higher rate than the rest of the EU.

On the contrary, already this year, pharmaceutical executives saw their fear of a trade war between Washington and Europeans diminish, so that drug exports from Ireland to the United States dropped drastically – there was no longer a need to fill stocks for a possible tariff increase – which left the variation in Irish GDP in clearly negative figures.

The most extreme case occurred precisely between January and March of this year, when the fall in the GDP of the Republic of Ireland plummeted by 12.1% compared to the fourth quarter of 2025, a figure typical of a severe economic depression that also left the growth of the EU as a whole in the negative. Although the European economy has had very low growth rates for some years, without the Irish pharmaceutical shock, it would have maintained an average upward growth of between 0.1% and 0.2%.

This situation calls into question the validity of GDP figures in general, but especially those of Ireland and the EU. If a group of multinationals using their Irish subsidiaries to avoid paying taxes can so alter growth data, they lose much of their value.