Ireland has little to fear from plans by US president Donald Trump to slash the US corporate tax rate to 20 per cent in a bid to lure US companies to return home.
This is according to Liam Diamond, an expert on international tax and inward investment with PwC Ireland. He said the effective rate that is being proposed would likely be about 25 per cent – down from the 35 per cent federal rate currently levied. This he said wouldn't "fundamentally change" the landscape for the Republic.
“We’ve had announcements before that were quite aspirational and which did not contain a huge amount of detail,” said Mr Diamond. “It will be interesting to see what – if any – base broadening measures the US is proposing in tandem with the rate reduction.”
Landscape
Mr Diamond, who noted that a rate reduction would benefit large and medium sized Irish-US companies doing business in and through the US, said even with a cut, Ireland would still compare favourably with the US for multinationals.
“We’re still looking at an effective corporate tax rate of 25 per cent, which would still represent a big gap compared with our own rate. So, I don’t think it fundamentally changes the landscape. Clearly, we’ve had our own very positive statements from the Minister for Finance on our 12.5 per cent rate, so there’s still likely to a big differential,” he said.
Mr Trump is expected to deliver a key speech on tax reform in Indianapolis on Wedensday in which he is expected to propose cutting the corporate tax rate and offering a tax amnesty to companies who harbour profits offshore.
IDA Ireland meanwhile downplayed the likely impact of such a move on foreign direct investment (FDI) here.
“Ireland plays a prominent role in US globalisation. US companies who come to Ireland come due to the ease of access to the European and global markets. They’ve been attracted and operating for 60 years, developing long and enduring commercial ties and there’s no reason to believe they’ll stop now,” a spokeswoman for the State body said.
“US companies choose Ireland for a variety of reasons but primarily, because Ireland is a great place to do business. They are drawn by Ireland’s highly skilled work force, the strong base of existing FDI companies here, the proximity to the European market, and a consistent, attractive tax regime.”
“The commercial reality is that in order to operate successfully in a market, you must locate there. Ireland is the perfect place for US companies to locate an office that can sell into one of the biggest markets in the world,” she added.
The Irish Tax Institute also indicated there was little to fear from Mr Trump's proposals.
Proposal
“There is a long way to go on this tax proposal and little detail has been revealed, although we may see more detail later today when official plans are published. The tax proposals are not just about corporate tax reductions, but rather is a complete package of tax measures including personal tax reforms,” said policy director Cora O’Brien.
“The package looks like it will be very costly (and it) will also need support across the board; that is a large political task that lies ahead. I think we need to take a calm and measured approach to this.” she added.
EY’s head of international tax services Joe Bollard said the nature and extent of any US tax reform will be important in the context of Ireland’s relative competitiveness. However, he said the business case for Ireland as an FDI location is multifaceted.
“We expect that multinational companies will continue to invest “in region” to access skills and take advantage of the proximity to the customer base in Europe and further east. If the US tax rate falls significantly that may improve the US relative competitiveness on the tax element of a location analysis but there are other factors as mentioned earlier,” said Mr Bollard.
The impact of US tax reform on the decision making of businesses may also depend on whether any reform is temporary or permanent,” he added.
Cormac Kelleher, an international tax parter with Mazars, said given the uncertainty that has existed since Mr Trump first suggested possible reforms, any firm proposals could be positive from an Irish perspective.
“We have seen a ‘wait and see’ approach being adopted by US entities and they might now start to undertake transactions and make investment decisions,” said Mr Kelleher.
“In terms of the Irish position, if, as suggested it is proposed to reduce US Corporation Tax to 20% rate, then Ireland will still be in a very strong position rate wise. The differential is still broad enough to provide Ireland with a competitive advantage,” he added.
Dublin Chamber of Commerce however described the proposals as a further wake-up call for Ireland, and one that should not be ignored.
“Competitor countries are continually refining their tax regimes in order to make themselves more competitive and attractive. Dublin Chamber has long highlighted the need for Ireland to follow suit. With the fall in Sterling aiding UK exporters versus Irish ones, it’s a crucial time and the Government has to act. We strongly urge the Government to take action in the upcoming Budget,” said head of public affairs Graeme McQueen.
“Corporation tax is only one aspect of our tax offering that we need to ensure is competitive. Dublin Chamber also wants to see an improved regime for high potential startups, which would include tax relief for share options to allow SMEs to attract and retain key staff and further improvements to our Corporate Gains Tax regime - which is still unattractive compared to that available in the UK and resulting in a drain of startups and founders to the UK and other countries.”
