Irish tax experts downplay likely impact of US tax reform on Ireland

Irish tax experts have played down the likely impact of US tax reform on Ireland, suggesting the measures currently on the table would not "materially affect " Ireland's ability to attract inbound investment.

US president Donald Trump is expected to give a broad outline of his tax plan in a speech in Missouri on Wednesday.

While the White House and Congress are aligned on the need for tax reform, there is no agreement as yet on the specifics of where to set the country's headline corporate tax rate, currently at 35 per cent, or how individual tax brackets should be changed.

After a string of high-profile policy setbacks on immigration and healthcare, the Trump administration is now desperate to notch up a legislative victory.

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Peter Vale, a tax partner with Grant Thornton, dismissed the likelihood of the US corporate tax rate being reduced from 35 per cent to 15 per cent as has been mooted by Mr Trump.

He said that since the administration had dropped plans for a controversial border adjustment tax, a move of that magnitude could not be funded.

Mr Trump had originally proposed introducing a tax on imports into the US, which would have threatened investment here by deterring US firms from locating abroad. The measure has subsequently been dropped.

Headline rate

Mr Vale said that while there was no consensus on where the headline rate might go, the change was likely to be more modest than previously signalled, perhaps in the mid-to-late 20s.

Deloitte tax partner Declan Butler said Mr Trump had a strong chance of passing tax reform legislation provided the package did not contain big tax cuts for the super wealthy, which might antagonise Democrats.

While there has been little bipartisanship in recent years and particularly since Mr Trump’s tenure, Mr Butler said there was broad support for tax reform in both parties on the grounds “it would be good for the economy and good for jobs”.

To have any credibility, Mr Butler said the package had to contain a cut in the headline rate of corporate tax. “There’s a fair chance it could be reduced to the low to mid 20s,” he said.

On the likelihood of a tax holiday for multinational earnings held offshore, another significant plank of Mr Trump’s agenda, he said it would make political sense to broadly follow the template of the previous initiative.

Former US president George W Bush introduced the country's last repatriation tax in 2004, which allowed companies repatriate overseas earnings at a tax rate of 5.25 per cent.

There is an estimated $2.6 trillion in US multinational earnings held offshore, equating to about 14 per cent of the US’s gross domestic product (GDP). A repatriation of even a fraction of this money could act as a major economic stimulus.

Competitive

Mr Butler said the impact of these measures, if they pass into law, on Ireland was still likely to be minimal as Ireland’s foreign direct investment offering would still be very competitive in global terms.

“I don’t expect the Trump tax package to materially affect Ireland’s ability to attract inbound investment,” he said.

Joe Tynan, international tax partner at PwC Ireland, agreed with the consensus view that there would be a corporate rate reduction but not of the magnitude initially signalled.

He also said some form of repatriation tax was likely, a move that would raise a once-off sum to stimulate the domestic economy. “The talk is that the tax might be in the region of 8 to 10 per cent,” he said.

With the border adjustment tax off the agenda, Mr Tynan said the move to a more territorial tax system, another measure being mooted by the administration, might have the biggest effect on Ireland.

Instead of taxing companies on their global income, the US would switch to taxing companies only on their US earnings.

A possible snag for Ireland is that US companies would only be able to avail of the new territorial measure if tax rates in the countries hosting their subsidiaries are above a certain level, he said, noting Ireland’s corporate tax rate at 12.5 per cent might be below the rate viewed as sufficient in the US.

This could impact investment here, he said.