Obama tax proposals could damage American investment in Ireland

The Irish government is worried about President Barack Obama’s proposed changes to his country’s corporation tax regime and fear it may impact on direct foreign investment in Ireland.

Some 600 American companies currently take advantage of the low corporation tax in Ireland but business leaders fear the Obama proposals could damage that.

Irish corporation tax currently stands at 12.5 per cent, considerably less than the 35 per cent rate in the United States.

The Irish Times newspaper reports that President Obama has proposed the imposition of a minimum tax on US companies’ foreign earnings as part of an effort to reduce incentives in the international tax system for US companies to shift income and investment overseas.

The proposals, released on Wednesday, did not state what the minimum tax rate should be when the changes are introduced late next year at the earliest.

The paper states that, at present, US subsidiaries based in Ireland do not have to pay the difference between Irish corporation tax rate and the US rate so long as they don’t repatriate their after-tax profits.

US treasury secretary Timothy Geithner outlined the proposed reforms.

He said: “The president believes we should strengthen the international tax system.

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“Today’s global economy provides strong incentives for companies to shift investment and profits to countries with low tax rates. We want to reduce the opportunities the tax code now provides to shift income and investment outside the United States.”

The report says that Geithner also stated that the administration was proposing a new minimum tax on foreign earnings, stronger safeguards on transfer pricing abuses, and replacing tax deductions US companies can get for relocating overseas with tax credits for expenses for companies that move operations back to the US.

The paper says the Obama administration wants to abolish a range of loopholes as part of a move to expand the US tax base, using the additional revenue to fund a cut in the corporation tax rate to 28 per cent.

The Obama regime wants to reduce incentives and opportunities to shift income and assets overseas.

He added: “For example . . . US companies may use accounting rules or aggressive transfer pricing to shift profit offshore. This is particularly true in the case of profits associated with intangible assets, like intellectual property.”

The American Chamber of Commerce in Ireland is not in a position to comment on the proposals until it has time to consider them.

A spokesman told the Irish Times that there are currently more than 600 US companies operating in Ireland.

“Ireland is attractive to these companies for a multitude of reasons,” he said.

“These include our well-publicised competitive and transparent taxation regime, a young, well-educated workforce, and our close ties to Europe.

“It is important that Ireland maintains its multifaceted attractiveness to foreign companies to enable the country to retain and grow investment.”

The Irish Times also spoke to a US economist and tax expert who recently gave evidence to the ways and means committee in the US House of Representatives.

Martin Sullivan told the paper that Ireland had benefited more than any other country from the fact that US corporations don’t pay US tax unless they repatriate their profits.

“So, Obama’s proposals to significantly curtail those benefits are a serious threat to the Irish economy,” he warned.

“The threat is not just from the Democrats. Tax reform proposals by some leading Republicans contain similar anti-abuse rules.

“It is still an open question in the debate in the US as to whether low tax income from active businesses, such as exist in Ireland, should be caught in the net.

“Most legislators would prefer limiting the tax hit to low-tax income where there is no measurable real business activity as in Bermuda and the Cayman Islands.”