Isme Tells Government to Redirect FDI Funding Towards Irish Entrepreneurs

Three companies. Forty-six per cent of Ireland’s corporation tax. That’s the sentence Neil McDonnell wants every TD to read before Budget 2027 negotiations begin.

On Wednesday, Isme — the Irish SME Association — published a pre-budget submission that does something most lobbying documents avoid: it names the problem rather than dancing around it. The group representing small and medium-sized companies said that 0.1 per cent of the total number of companies in Ireland — just 297 firms — accounted for 84 per cent of total corporation tax receipts last year. Isme’s ask isn’t subtle either. Stop chasing every multinational that lands on Ireland’s shores, and start building an enterprise policy where Irish-owned businesses actually grow. The Irish Times

Why Ireland’s Foreign Direct Investment Model Is Under Scrutiny

For three decades, Ireland’s economic story has had one author: foreign direct investment. It’s estimated that 20 per cent of all private sector employment in the State is directly or indirectly attributable to FDI, and the tax dividend has been extraordinary. The Government collected €34.7 billion in corporation tax in 2025, with corporate tax now representing close to a third of total state revenue. Around 970 US subsidiaries operate in Ireland, drawn partly by a tax regime that, until the OECD’s global minimum tax kicked in, offered one of the lowest headline rates in the developed world. Department of Enterprise, Trade and Employment + 2

That success has bought Ireland sovereign wealth funds, infrastructure spending, and a budget surplus most eurozone finance ministers would envy. It’s also bought Ireland a single point of failure — and Isme’s submission argues that point of failure is getting sharper, not safer.

The Core Development: What Isme Is Actually Proposing

Isme’s pre-budget submission for Budget 2027 sets out seven policy goals, and the throughline connecting all of them is rebalancing — shifting the centre of gravity in Irish enterprise policy away from multinationals and towards indigenous firms. The submission addresses business costs, skills and training, public finances, and housing as interlocking pressures on small business, but the headline ask is structural: redirect the supports, tax architecture, and capital flows currently weighted towards foreign-owned firms so that Irish-owned companies can scale. ISME

Neil McDonnell, Isme’s chief executive, didn’t soften the framing. “Our tax base is built on a very small number of companies, and this is simply not sustainable,” he said, according to reporting from The Irish Times. “For many years, our enterprise policy has [favoured] overseas multinationals at the expense of local business, particularly in the areas of R&D supports and key employee engagement.”

On the fiscal side, Isme wants capital gains tax restructured: a standard rate of 25 per cent, a reduced 20 per cent rate specifically for intellectual property, and dividends taxed under the CGT regime rather than income tax. The logic is straightforward — Irish founders who build and eventually sell a company are taxed more punitively on the upside than the multinational structures around them, which discourages the kind of scale-up activity Ireland says it wants.

Then there’s the FDI twist that gives this story its sharpest edge. Isme isn’t calling for FDI to be abandoned. It’s calling for FDI to be redirected — towards what the group describes as “symbiotic” investment. Rather than foreign capital sitting inside self-contained global supply chains with minimal local linkage, Isme wants FDI that plugs directly into Irish suppliers, Irish subcontractors, and Irish talent pipelines. Money that currently flows to attracting another data centre or another European headquarters would instead be steered, at least in part, towards co-investment structures that benefit home-grown firms.

It’s a quiet but consequential reframe. Ireland’s industrial development agencies have spent decades measuring success by inward investment announcements. Isme’s submission asks what happens if the scoreboard changes.

The Concentration Problem: Why Isme’s Timing Matters

How concentrated is Ireland’s corporation tax base?

In 2024, the top three highest-paying corporate groups accounted for 46 per cent of all corporation tax revenues — roughly €13 billion. More broadly, 84 per cent of corporation tax receipts come from foreign-owned multinationals, with over half paid by just ten companies. That’s the concentration risk in a single paragraph, and it’s the statistic Isme is leaning on hardest. Fiscalcouncildeloitte

What makes this submission different from previous years isn’t the diagnosis — Isme has flagged overreliance on multinationals before. It’s the timing. Ireland’s corporation tax windfall isn’t shrinking; if anything, it’s accelerating as the new 15 per cent minimum effective rate phases in from 2026. That creates a strange political problem: the more successful the FDI-driven tax model looks on paper, the harder it becomes to argue for structural change, even as the underlying fragility — three firms, 46 per cent, two of them in a single sector — gets worse, not better.

Isme’s read is that Ireland is mistaking a sugar high for health. The 2025 jump in pharmaceutical exports, partly driven by US firms frontloading shipments ahead of anticipated tariffs, flattered the headline numbers. Strip out the one-offs and the structural exposure is unchanged: a handful of American technology and pharma groups effectively underwrite a third of the Irish state’s tax intake. Isme’s argument is that every euro of enterprise spending that doesn’t go towards building a second engine — an indigenous one — is a euro spent widening the gap between Ireland’s fiscal health and Ireland’s fiscal resilience.

There’s also a generational dimension Isme leans into. Skillnet Ireland, the state’s employer-led training network, currently disburses a modest amount in co-funded training relative to the National Training Fund’s reserves. Isme wants that figure roughly doubled, on the basis that Irish SMEs — who employ the majority of the private workforce — get a fraction of the training and R&D supports that flow, often automatically, to multinational subsidiaries with dedicated grants teams and in-house tax advisers.

Implications: What Happens If Dublin Listens — Or Doesn’t

If Budget 2027 absorbs even part of Isme’s agenda, the most visible early change would likely be on the capital gains side. A 20 per cent CGT rate for intellectual property would put Ireland closer to regimes that already compete for founder-retention — countries that have built “patent box” style incentives precisely to stop their best entrepreneurs from selling early or relocating IP offshore. For Irish tech and life sciences founders weighing whether to headquarter a growing company in Dublin or Delaware, that’s not a marginal consideration.

The redirection of FDI towards “symbiotic” investment carries a longer timeline but potentially a bigger structural payoff. Ireland already has an evidence base for what targeted, talent-focused investment regimes can do. A report commissioned by Stripe co-founder John Collison and authored by economist Alan Ahearne pointed to Israel and Portugal as examples of countries that built tax incentive regimes specifically to pull skilled professionals into domestic firms rather than simply hosting foreign subsidiaries, as covered by The Irish Times. If Ireland adapted that model — incentivising the kind of talent that strengthens Irish-owned companies, not just multinational payrolls — the effect on regional employment could be significant, since indigenous SMEs are far more geographically distributed than the multinational cluster around Dublin and Cork.

There’s a risk dimension too, and it cuts both ways. If the Government does nothing and corporation tax receipts eventually normalise — through reshoring pressure from US policy, through the bite of the 15 per cent minimum rate reshaping where multinationals book profits, or simply through the cyclical nature of pharma and tech earnings — Ireland would be absorbing a fiscal shock with an indigenous sector that was never given the tools to absorb the slack. That’s the scenario Isme is explicitly trying to pre-empt. The two sovereign wealth funds the State has built — the Future Ireland Fund and the Infrastructure, Climate and Nature Fund — are designed for exactly this kind of shock, but a savings buffer doesn’t create jobs in Mullingar or Mayo. Only a functioning indigenous enterprise base does that.

The Counterargument: Why Ireland Might Not Rebalance Quickly

Not everyone agrees the FDI model needs a structural pivot, and the case against rapid rebalancing isn’t trivial. Ireland’s industrial strategy has, by most conventional measures, worked. The Government strongly encourages and incentivises foreign R&D investment as part of a national strategy to build a more knowledge-intensive economy, and the multinational presence has helped fund an education and research infrastructure that, in theory, indigenous firms also benefit from. U.S. Department of State

The counterargument, often heard from industrial development officials, runs roughly like this: FDI and indigenous enterprise aren’t actually competing for the same pool of resources in the way Isme’s framing implies. Multinational investment brings its own capital, its own R&D budgets, and its own export markets — it doesn’t, in this reading, crowd out domestic firms so much as create the high-wage economy, skilled labour pool, and infrastructure spending that indigenous companies then draw on. Redirecting FDI incentives towards “symbiotic” structures, sceptics argue, risks making Ireland less attractive at precisely the moment global competition for mobile investment is intensifying — Ireland already faces real headwinds in labour costs, energy prices, and a planning system widely described as too slow.

There’s also a fairness argument buried in the CGT debate. A reduced rate for intellectual property income could be characterised, by critics, as simply creating a new tax shelter — one that, ironically, might be most easily exploited by larger firms with sophisticated structuring capacity rather than the small, owner-operated businesses Isme represents. Whether a 20 per cent IP rate primarily benefits a Cork software founder or a multinational’s Irish holding entity would depend entirely on how narrowly the legislation defines eligibility — and Irish tax legislation has a long history of definitions drifting wider than intended.

The Unresolved Tension

What Isme’s submission really exposes is a contradiction Ireland has lived with comfortably for years and can no longer fully ignore. The country has built one of Europe’s healthiest public balance sheets on the back of a tax base so concentrated that three corporate groups could, in theory, reshape the State’s fiscal position through decisions made in boardrooms thousands of miles away. Isme isn’t arguing that this model failed — it’s arguing that success on this scale was never meant to be permanent, and that the window to build a genuine second pillar is open precisely because the multinational sector is currently strong enough to absorb a few years of redirected attention without collapsing.

Whether Budget 2027 reflects any of this will say less about Isme’s lobbying than about how seriously Dublin takes a warning it has, in various forms, been hearing for a decade.