The Foundation for Fiscal Studies - a non-profit aimed at promoting discussion of issues related to fiscal policy - is hosting an event in Dublin today to dicuss the implications for Ireland from plans for Tax Reform in the US.
Frank Barry, Professor of International Business and Economic Development at the Trinity Business School, said the US Treasury Secretary last week announced proposals, or a roadmap, for where the US administration wants to go on corporation tax. The main headline in those proposals was a tax amnesty, which has few if any implications for Ireland, while the slashing of the US corporate tax rate from 35% to 15% was also proposed.
But the other significant change proposed was a move to a territorial system. Describing this as a dramatic change, Professor Barry said that currently US corporations operating in Ireland pay Irish taxes, but they then owe taxes to the US exchequer in the amount of the difference between the US and Irish tax rates. Under the new proposal, US corporations with overseas operations would no longer owe taxes to the US exchequer - they would pay their taxes locally and would be free of any more US taxes. "It would incentivise further outward direct investment from the US, which would be beneficial for us, and goes against the thrust of the headlines which focused on the slashing of US corporate tax rate," he added.
Professor Barry said the cutting of the US corporate tax rate will have implications for Ireland even though we are not directly competing with the US for investments. He said it is likely to reduce the incentive for the off-shoring of intellectual property - which has been an been an important component of Ireland's tax offering over the last few years in response to the OECD's Base Erosion Profit Shifting initiative. But he added that last week's proposals are still very short on detail and he is not expecting any dramatic changes any time soon.
Brian Cotter, Public Affairs Director at American Chambers of Commerce Ireland, said that Ireland is pivotal in the two-way relationship between the US and Europe. He said the trans-Atlantic economy accounts for a third of all imports and exports in the world as well as over half of the world's investment. Ireland plays an important role in that. In Europe, US companies have 11% of their investments in Ireland but it goes the other way too and Irish companies are very active in the US - including the likes of Glanbia, CRH and Kerry, Mr Cotter said. Irish companies have a major footprint in the US and employ over 100,000 people. That investment generates about $90 billion in US sales so it is very much a fair and reasonable investment and trade relationship between the US and Ireland, he added.
We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences
Ron Davies, Professor of Economics at University College Dublin, said that when governments cut business taxes, this results in more money in companies' hands and they then invest that extra money. They can invest some of that money at home but they can also invest some abroad. So if the US cuts its tax rate, US companies will have more money and some of that money could end up in Ireland, Professor Davies stated.
When the Bush administration temporarily cut taxes in 2005 to encourage repatriation of taxes, billions of dollars were sent back to the US. This resulted in a 10% fall in foreign direct investment in Ireland that year, which appeared to be a very "scary" scenario. But employment by multinationals rose by 3% at the same time. Professor Davis said that from the perspective of someone who is trying to bring in US investment the key things are the jobs, the technology and the business linkages and the dollar figure is not really what it is all about.
