Ireland’s low corporate tax regime will be undermined if Biden proposals pass

Ireland's low corporate tax regime, a vital tool in attracting foreign investment, will be undermined if new proposals from US president Joe Biden are passed by the US Congress.

The president has proposed a new 21 per cent minimum tax rate to apply on the global profits of US companies, which would mean the Irish 12.5 per cent rate would no longer be relevant in attracting American companies to Ireland.

Mr Biden’s tax-raising plan is to help pay for a massive programme of economic expansion involving a $2 trillion investment in infrastructure and sweeping rises in business taxes.

The package may face significant change as it goes through the US Congress, but it is clear the president is targeting extra revenues from what he termed “tax havens” for US companies overseas.

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Biden’s ‘global minimum’ tax rate carries big dangers for Ireland

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Big changes in global corporate tax have been under discussion among 139 countries under the auspices of the OECD, including a global minimum tax rate for big companies.

However, Mr Biden has decided to preempt this by announcing the proposed changes to the US tax regime, while also committing to seeking a “ strong” minimum rate applied internationally.

All income

The key proposed change is to a special US tax which applies on much of the overseas earnings of companies at a rate of 10.5 per cent.

The Biden administration wants to increase this rate to 21 per cent, but also, crucially, to change the way it operates. In future it would apply to all income – currently much of it exempted – and apply on profits earned in each country rather than total international earnings.

This would mean American companies based here would pay more tax in the US, in addition to the 12.5 per cent paid here.

"Effectively if you paid 12.5 per cent in Ireland you might end up paying an extra 8.5 per cent tax on your Irish income in the US," said Ibec's chief economist Gerard Brady.

The Department of Finance said it noted the US announcement, and that Ireland remained committed to reaching a sustainable agreement at OECD level.