Erin Go Bragh! American Companies See Green in Ireland

Irish eyes are smiling in corporate America.

The Emerald Isle has emerged as the world’s top recipient of U.S. foreign direct investment, according to a report from the American Chamber of Commerce Ireland. In the first nine months of 2014, Ireland beat the likes of Canada, Mexico, the U.K. and China to earn the title of America’s favorite nation for business.

During that period, $37 billion flowed from American businesses into Ireland, a 42% increase. Meanwhile, total U.S. investment in Europe was down 19% year-over-year at $115 billion.

“It’s a very significant addition to the economy to get a foreign inflow like that,” said Douglas Handler, chief U.S. economist at research firm IHS. He noted that a $37 billion total investment equates to at least 15% of Ireland’s gross domestic product.

The Irish economy has come a long way since the financial crisis. At the height of its troubles, Ireland received an $84.5 billion bailout from the European Union, European Central Bank and International Monetary Fund in 2010. Unemployment soared as high as 14.6%.

Ireland exited its bailout program at the end of 2013, and last year, the nation’s economy grew at a faster pace than its eurozone brethren. The Central Bank of Ireland estimates that GDP rose 4.7% in 2014. The entire eurozone averaged less than 1% growth.

Ireland still has a long road ahead. Its unemployment rate, despite falling for 39 consecutive months, still came in at 10.1% last month. Debt levels also remain high. As a percentage of GDP, Ireland holds the fourth-highest debt in the European Union at 115%.

But the Irish are counting their four-leaf clovers that the influx of cash from Apple (AAPL), Google (GOOGL) and other American heavyweights can help usher in a new Celtic Tiger economy – a nickname for the Irish boom of the late 1990s.

U.S. investment is “one of biggest aspects of what’s driving a rebound in Ireland,” Handler said. “Ireland has a low tax rate, and it’s a great conduit to get into the European Union. Ireland is no doubt a very attractive investment source for U.S. firms.”

The Chamber’s report, authored by veteran Wall Street economist Joseph Quinlan, estimates that 130,000 people are employed by 700 U.S. companies in Ireland. Since 1990, those businesses have put more than $277 billion in Ireland. That’s more than U.S. investments in Brazil, Russia, India and China combined.

Just last year, 140 new investments were announced by U.S. firms, including 60 that came from companies investing in Ireland for the first time.

It’s a two-way street, too. Irish companies generate annual sales of $62 billion in the U.S., where they held a record investment position of $26 billion in 2013. Ireland’s corporate presence is larger than that of Italy, Denmark and Finland.

Irish Tax Cut

How does Ireland attract U.S. businesses? It’s not just the luck of the Irish. For one, the nation has some of the lowest taxes in Europe.

Ireland’s corporate tax rate of 12.5%, compared to a 21% rate in the U.K. Both countries are far below the U.S. federal rate of 35%.

“As long as you don’t bring those earnings back, you get the advantage of low taxes,” Philip Cohen, a professor of legal studies and taxation at Pace University said.

There’s also the so-called Double Irish loophole. It allows companies operating in Ireland to send profits to subsidiaries located in tax-free jurisdictions like Bermuda and the Cayman Islands.

Silicon Valley, a big investor in Ireland, has been a prime beneficiary. Google (GOOGL), Facebook (FB), Apple (AAPL) and Microsoft (MSFT) all take advantage of the Double Irish in some way, according to corporate filings.

However, the Double Irish will be phased out over a six-year period. The tax code was changed to require Irish-registered companies to keep their tax homes in Ireland.

Beyond overseas investing, Ireland’s tax advantages have also spurred companies to pursue acquisitions there.

Medtronic (MDT) recently bought Covidien, a rival medical device maker based in Ireland, for $43 billion. The tax inversion deal allowed Medtronic to slash its tax bill. The combined company is headquartered in Dublin rather than Minneapolis, Medtronic’s U.S. home.

The Treasury Department has sought to deter companies from moving overseas. Treasury officials enacted new rules last year, a move that actually led drug maker AbbVie (ABBV) to scrap a proposed acquisition of Ireland’s Shire (SHPG).

Some lawmakers have called for legislation that would prohibit tax inversions entirely, but those efforts failed to gain traction.

“I don’t think it’s a major concern with U.S. companies that legislation could be passed in the next two years,” Cohen said.

Tech, Pharma Go Green

Medical firms, along with American tech giants, are certainly bullish on Ireland.

Many companies use Ireland as a gateway into the wider European market. Apple, for instance, bases its international operations out of Cork, and the company recently announced plans to build a new data center in County Galway.

The facility, which is part of a €1.7 billion ($1.8 billion) plan that also includes a data center in Denmark, will help power Apple’s iTunes, App Store and other services across Europe.

Google already runs a data center in Ireland, where more than 2,500 people from 65 countries work for the Silicon Valley titan. Its European headquarters in Dublin is Google’s largest office outside the U.S. Last year, Google purchased another Dublin office building, the Grand Mill Quay, for €65 million.

Google invested over €300 million in Ireland between 2010 and 2013, including the development of its data center and headquarters.

As for the healthcare industry, Illinois-based Abbott Laboratories (ABT) has a significant footprint in Ireland. Pharmaceutical giant Pfizer (PFE) also has operations there.

Tax breaks aren’t the only driver of American investments in Ireland.

“The tax tail doesn’t wag the dog,” Cohen said. “Companies can invest in low-tax jurisdictions, but they also need a skilled workforce.”

For tech and pharmaceutical firms, foreign investments are a logical move due to the global nature of their businesses, and companies are finding skilled workers in Ireland.

“Those jobs are not so easy to execute,” Handler noted, saying Ireland’s educated workforce is an alluring attribute. “Ireland has a nice combination of low labor costs, English-speaking employees and the ability to re-export into the EU.”