Cantillon: Ireland has skin in US tax inversion game

Big business in the US is taking on its political establishment over new tax inversion rules in a row that could affect investment flows into Ireland.

When public anger in the US at perceived tax-dodging by multinationals peaked earlier this year, US president Barack Obama’s administration stepped in with new restrictions on so-called tax inversion deals, where companies merge to shift headquarters for tax reasons.

The new regime lead to the scuppering of a proposed $160 billion tie-up between Allergan and Pfizer, which was called off the day after the changes were introduced. Ireland, where Allergan is domiciled, was to have been its tax-friendly home.

The US Chamber of Commerce and the Texas Association of Business this week launched a lawsuit in Texas against the Internal Revenue Service – essentially the US taxman – in an effort to get the new rules overturned.

They cite the Allergan-Pfizer deal in their complaint, suggesting the rules were designed specifically to block that merger. The lawsuit says the new rules went too far in trying to puncture some of the main benefits of such tax-driven mergers.

The plaintiffs argue that the authority of the US congress was improperly superceded by the rules.

The court case is the last real chance for US multinationals to reverse the new restrictions on tax inversions. US officials say they will defend it vigorously.

The row will likely drag on until next year, into either a Trump or a Clinton presidency. If it is the former, the issue of tax inversions is likely to become even hotter, given Donald Trump’s populist proclamations about global trade.

Ireland, as one of the most popular low-tax locations for US companies seeking tax inversion partners, has significant “skin in the game” in this row. Unfortunately, it also has no real power to influence the matter.