Irish banks are cashing in on a tax incentive introduced last year by US president George W Bush in an effort to encourage US multinationals to repatriate more of their profits to the US economy.
AIB became the first to declare its exploitation of the scheme when it placed an advertisement this week disclosing that it extended a loan of $60 million (€50.78 million) to the US pharmaceutical group Stiefel to enable it to benefit from the scheme. Stiefel, which employs 200 people in Sligo, declined to comment.
Mr Bush's plan allows US-owned companies to repatriate profits earned abroad within a fixed period at a reduced tax rate of 5.35 per cent. This offered significant advantages to US groups, particularly those with big profits, as the typical tax on such repatriation is 35 per cent.
The scheme's objective is to encourage US companies to use the returned funds to create domestic jobs, for research and development, for capital expansion, and mergers and acquisitions in the US market.
But most companies need at least some of their cashflow to finance continuing operations and investments abroad. To overcome that hurdle, they are entitled under Mr Bush's scheme to take out loans to repatriate the value of profits earned but used for day-to-day trading.
Because of the high level of US investment in the economy, senior banking sources in Dublin said certain Irish banks were actively pursuing opportunities in this area. With billions of dollars flowing back into the US, banks are offering multimillion dollar loans to US groups here to fund their repatriations.
Groups of banks are also offering syndicated loans to fund larger borrowings. For example, one source said he was aware of three loans that were in preparation, one of which is valued in the region of €150 million. Official statistics show foreign groups repatriated a greater proportion of their profits from Ireland last year than in 2003, leading to a reduction in the level of retained earnings in Ireland in 2004.
This was a big factor in the reduction in the flow of net foreign direct investment into the economy, particularly in the final quarter of 2004.
Apart from Stiefel, two other US groups are known to have used the scheme. The first was drug maker Forest Laboratories Ireland Ltd, which took a $1.26 billion dividend from its Irish unit last year to take advantage of the concession. The second was IT giant Dell, which took a dividend of more than €84 million from its Irish unit last January.
