At a time when Zambia, and many other countries, are trying to maximise tax revenue from big foreign companies, Ireland is doing the exact opposite.

Ireland, a member of the European Union (EU), was ordered by the European Commission to collect €13 billion ($14.7 billion) in disputed unpaid tax from American technology giant Apple, which runs a large portion of its global operations from the country.

Whilst the focus of most public attention has been on Apple and its tax arrangements, the reaction of the people of Ireland to the Commission ruling is arguably more noteworthy, as it seems counter-intuitive.

Far from welcoming the cash injection, Irish politicians were furious when the issue was discussed in their Parliament this month. “We will fight it at home and abroad and in the courts,” said the country’s Finance Minister. The Prime Minister declared that the Commission ruling “cannot be allowed to stand”.

Most significantly, though, a poll showed that more than 76% of the Irish people shared these views, and believed that the ruling should be contested.

“Multinationals provide 20% of all private-sector jobs in Ireland”

Why would the people of Ireland turn down a huge cash windfall, representing about 6% of annual Gross Domestic Product (GDP), and equivalent to the country’s entire annual health budget?

Ireland’s government and people don’t want to collect the disputed tax because they believe it would compromise the country’s economic model – specifically designed to attract foreign investment and create jobs.

Underpinning this model is a low corporate tax rate of 12.5%, which has provided the incentive for multinationals to base themselves in Ireland, rather than more-established corporate locations nearby, such as the UK.

The Irish see the ruling as a threat to the stability and success of their system, which they fear could result in the departure of the foreign companies that have made Ireland their home.

According to The Economist magazine, multinationals lured by the low tax rate now provide 20% – or around 300 000 – of all private-sector jobs in Ireland.

“Alongside EU membership and friendly business laws, it is how Ireland attracted the foreign cash that transformed a country of poor farmers into a wealthy knowledge economy,” The Economist says.

A 2014 report by Ireland’s Department of Finance, Economic Impact Assessment of Ireland’s Corporation Tax Policy, says: “The headline rate of corporation tax is very important for FDI [Foreign Direct Investment] decisions. If Ireland were to increase the 12.5 percent corporation tax rate, it would significantly reduce FDI flows into the country.”

The report adds that lower tax means higher economic growth: “Evidence based on a wide number of countries indicates that a 10 percent reduction in corporation tax could have anywhere between a 0.6% and 1.8% effect on economic growth rates.”

The report also shows that despite the low tax rate – or perhaps because of it – Ireland actually collects more corporate income tax as a percentage of GDP than half of the EU member countries, including France, Italy, Spain and the Netherlands.

What’s more, far from declining, the country’s overall tax revenues have flourished since the rate was introduced. OECD figures show that from 1998, when Ireland started to phase in the 12.5% corporation tax rate, and 2014, total tax revenues went from €24.8 billion to €55.4 billion – an inflation-adjusted increase of around 120%.

Ireland’s stance on tax and FDI stands in sharp contrast not only to Zambia’s, but that of countless other countries, including Britain, France and the United States.

There is presently a widespread distrust of multinationals in other parts of the developed world. For example, in January 2016, Google was made to pay £130 million in back taxes to the UK government. Then Chancellor, George Osborne, said companies in Britain “must pay their fair share of taxes” – a refrain that will be familiar to Zambians. European Union countries, in particular, look to tax to fund their extensive public-service and welfare benefits.

8341462 - a worn irish euro coin on grey. short depth of field.

This general mistrust of big companies translates into very high corporate tax rates, which is precisely why so many multinationals have relocated to Ireland.

Writing in the Wall Street Journal, U.S. Treasury Secretary, Jacob Lew, says the Apple/Ireland tax saga shows the need for tax reform in the United States. “The combination of the relatively high U.S. tax rate, our complicated system for taxing multinational businesses, and our ageing infrastructure has encouraged and facilitated the erosion of our tax base and made America a less attractive place to do business.”

What lessons can Zambia draw from the Apple/Ireland tax saga?

The most obvious is that as a cash-strapped developing country with high poverty, a small economy and a narrow tax base, the need to attract foreign investment is even more urgent than in Ireland’s case. As we have seen in Zambia since 2000, it is investment that drives economic growth.

Take North-Western province: in the space of barely 10 years, it has gone from a poor, rural region devoid of any notable economic activity, into a thriving mining province whose three new mines – Kansanshi, Barrick Lumwana and Sentinel – now produce more than half of Zambia’s copper. Employment has grown, businesses have been created and economic development has been rapid – chaotic in the case of Solwezi, and far more planned in the case of Kalumbila. And it was all a result of billions of dollars of investment at a time when mining tax rates were lower than they are now.

Zambia Chamber of Mines president, Nathan Chishimba, says: “As a nation, we are inclined to view economic development and the eradication of poverty through the narrow prism of tax receipts and government expenditure – how much money the government is getting and disbursing – rather than through the wider perspective of economic growth and employment. The result is that we tend to focus on exploiting the existing tax base, rather than trying to grow it so that there are more taxpayers paying in to the nation’s coffers – namely, more businesses in operation, and more people in employment.

“It’s not wrong to want to maximise tax revenues – after all, they fund the essential operations of government, which include health, education and infrastructure. It’s really a question of how you go about it – hitting current tax payers hard discourages economic activity and new investment, and ultimately stunts future tax revenues. Whereas, creating an enabling investment environment has the opposite effect.”

However, according to Chishimba, a system such as Ireland’s does require strong institutions, to ensure that all parties – governments, investors and regulators – uphold their end of the bargain.

“A big problem that we face in Zambia is that there is not sufficient faith in the ability of our authorities to monitor and collect all taxes owed. Uncertainty breeds misunderstanding and negative perceptions, which then creates a public environment that is hostile to investors. This is in no one’s interest, and is why we in the mining industry are now strongly supporting programmes designed to build institutional capacity and increase information transparency, such as the EU-funded Mineral Production Monitoring Support Unit.

The evidence from the Apple/Ireland saga suggests that countries should focus their efforts on building strong institutions with transparent processes, and their policies on long-term economic growth, rather than short-term tax revenues.