Ireland Stirs Homegrown Flavor Into Tech Scene

But Ireland last month became the first debt-ridden European country to exit an international rescue package, and now, through a combination of both longstanding and new grants and tax breaks, government officials are pushing to invigorate smaller, homegrown Irish companies. The hope is that a more robust tech sector can cement the country’s economic recovery.

It won’t be easy.

Ireland’s start-up scene is still relatively small compared with other European hubs like London and Stockholm. In the first nine months of 2013, the latest figures available, the country’s fledgling companies received around a combined $65 million of venture capital investment, a 28 percent drop compared with the same period a year earlier. The figure also is less than a tenth of what rivals in Britain secured in the first three quarters of 2013, according to the data provider DJX VentureSource.

And in the race to attract top engineering talent, the lifeblood of a start-up, it is hard to compete with the likes of Google and other global companies, which can offer tantalizing salaries and perks, as well as prestige.

Still, there are signs of hope. The domestic tech industry generates around 70 billion euros, or 40 percent, of Ireland’s annual exports and employs more than 100,000 people, according to government statistics.

This activity can be seen in the Grand Canal Docks, where young multilingual programmers and developers swap office gossip over expensive coffees in fashionable riverside bistros, while construction workers scramble to build high-rise office blocks to house international and local companies that have flocked to the area.

“This place has an interesting combination of young people and inventive scrappiness,” said Stefan Weitz, a senior director of search at Microsoft who has regularly visited the company’s operations in Ireland over the last 15 years.

For many of Ireland’s fledging companies, the key is to look for growth beyond their home market, which has a population smaller than that of Massachusetts. To succeed, many rely on government grants and tax breaks, like a 25 percent tax credit on research and development conducted in the country. The support is available to big and small tech companies alike.

The tactic, which also has been successfully used by Israel to help its domestic tech industry, allows companies to hire more engineers and developers as they can write off some of the cost against their corporate taxes.

To maximize the benefits, many Irish tech companies retain their development centers in the country, but move senior managers overseas, often to the United States, to be closer to their clients and investors.

For example, Movidius, an Irish semiconductor firm that has raised almost $50 million in venture funds, has a 12-person team in Dublin although its chief executive is in California. Datahug, an online business networking start-up, also has a sales office in New York, though it expects to keep its engineers and developers in Ireland.

“It’s cheaper here, but we need to be close to our customers,” said Ray Smith, 33, a co-founder of Datahug, who spends half of his time in the United States. “To succeed, you have to be in America.”

One aspect of Silicon Valley culture can certainly be found here: the struggle to hire and retain top talent.

Local entrepreneurs often complain that it remains difficult to hire well-qualified Irish engineers and developers, despite the country’s youth unemployment rate of almost 30 percent.

“There’s not enough local talent,” said Petter Made, a Swedish co-founder of the payments start-up SumUp, who oversees a 35-person team in Dublin that includes few Irish developers.

Ireland Defends Tax Laws to Critics at Home and Abroad

There, in the Hollyhill Industrial Estate and elsewhere in Ireland, Apple employs a mere 4 percent of its global work force. But there, too, Apple recorded a staggering 65 percent of its worldwide income — $26 billion last year — enabling the company, according to Senate investigators, to markedly reduce its tax bill in the United States and the rest of the world.

Such arrangements are not uncommon in Ireland, where for years authorities have not only tolerated but encouraged multinational companies like Google, Facebook, Pfizer, Johnson & Johnson and Citigroup to set up shop and provide good jobs, in return for helping those companies pay less tax around the world.

But on Tuesday, as Timothy D. Cook, Apple’s chief executive, found himself on Capitol Hill being questioned about Apple’s tax practices, Ireland came under sharp criticism for its attractiveness as a pied-à-terre for American companies doing business in Europe. At the eye of that storm: a special corporate tax rate of only 2 percent that Senate investigators say Apple worked out with Irish tax authorities.

Carl Levin, the Michigan senator who heads the Senate Permanent Subcommittee on Investigations, said Apple was “exploiting an absurdity” by using three Irish subsidiaries to legally avoid taxes.

The United States Senate is hardly Ireland’s only critic on tax matters. Britain, France and other European Union countries have long been annoyed by Irish policies. During hearings in the British Parliament last week, Margaret Hodge, a member of the opposition Labour Party and chairwoman of the Public Accounts Committee, which oversees taxation, upbraided Matt Brittin, Google’s vice president for North and Central Europe, that the company’s tax practices were “devious, calculated and, in my view, unethical.”

Even before the Senate subcommittee invited Mr. Cook to testify, the British prime minister, David Cameron, declared that the topic would be a focus of the meeting of the Group of 8 richest countries he plans to convene next month at Lough Erne in Northern Ireland.

“We need a truly global solution,” Mr. Cameron wrote in a letter to Herman Van Rompuy, president of the European Council, in April. “As I am sure you will agree, the path to reform starts with the basic recognition that current global tax rules do not reflect the modern and globalized economy that our citizens live and trade in.”

Ireland, with an economy that ranks 47th in the world, is not a member of the Group of 8.

Ireland’s deputy prime minister, Eamon Gilmore, on Tuesday disputed the Senate report’s contention that Apple paid a special rate, saying “Ireland doesn’t negotiate special tax rate deals with any companies.” He said that if Apple was not paying its fair share elsewhere in Europe, the fault lay in “loopholes” in other European countries that make it too easy for companies to avoid taxation.

“That’s an issue that has to be addressed first of all in those jurisdictions,” Mr. Gilmore told reporters in Brussels.

The charge by the Senate subcommittee that Apple avoided paying $44 billion in taxes in the United States by keeping the bulk of its $102 billion cash hoard offshore has struck a nerve here in a recession-racked country where unemployment is 15 percent and the government is looking for ways to repay an 80 billion euro bailout, now equivalent to $103 billion, that it received from the European Union and the International Monetary Fund in 2010.

“There is something wrong with this picture — the revenues of these companies keep increasing while our workers are getting crushed,” said Peter Mathews, a chartered accountant who is also a member of the Irish Parliament for the governing Fine Gael party. “Apple’s cash pile is about the size of our national income. Why not have them pay a 4 percent levy to contribute to our national recovery?”

Apple, which set up its first overseas headquarters in 1980 in Cork to assemble Macintosh computers, has a long history with the Irish. Its 4,000 workers — the largest Apple labor force in Europe — is significant in a country of only 4.6 million people. Apple’s employees assemble iMacs and Mac Pros and are also engaged in research, customer service and other support functions. “Our tax system may be lax, but in exchange we get jobs and more foreign investment,” said Stephen Kinsella, an economist at the University of Limerick who contributes to the influential Irish Economy blog. “No doubt about it, the benefits outweigh the costs.”

Irish politicians through the years have stood behind the country’s official 12.5 percent corporate tax rate, so much so that three years ago when the previous government negotiated the international bailout, it refused to budge when European negotiators wanted to make a higher tax rate a condition for a deal.

Government figures show that in 2010 the effective rate on the gross income of companies here was only 6 percent, and economists say that in some cases — as with Apple — it can go lower than that. That stands in contrast to the effective corporate tax rate in other countries: 29 percent in the United States, 22 percent in Britain, 27 percent for France and 24 percent for Germany.

More than 600 American companies have set up in Ireland, employing 100,000 Irish workers and enjoying the advantages of an English-speaking work force and low taxes.

Representatives of several American companies, including Amazon and Starbucks, have, like Google and Apple, insisted that they comply with the law.

“Apple does not use tax gimmicks,” Mr. Cook told the Senate subcommittee Tuesday.

Under European Union law, companies based in one European country are permitted to do business across the 27-nation bloc, and Internet companies, in particular, use that rule to book their European revenue in the country offering the greatest tax benefits. For many, that is Ireland.

But if Ireland were to change its approach to taxation, other low-tax European countries like Luxembourg and Slovakia would simply take its place.

“Back in the 1970s and ‘80s, when Ireland was a poor state desperately trying to attract investment, tax was a weapon that others weren’t using,” said Richard Murphy, founder of the Tax Justice Network, a group in London that campaigns against tax havens. “So Ireland developed a twofold strategy: low rates and not too many questions. It became the conduit state of choice.”

Landon Thomas Jr. reported from Dublin and Eric Pfanner from Serraval, France.