Trump’s radical corporate tax plan could slow investment abroad

Planned cuts in US corporation tax could slow the future flow of foreign direct investment (FDI) into countries such as the Republic but are unlikely to affect existing US operations here, Irish tax experts believe.

There was also considerable relief on Thursday that Donald Trump’s proposals to institute a special tax on imports into the US has been placed on the backburner, since these were seen as particularly threatening to the Irish economy.

The proposed cut in the US corporation tax rate from 35 to 15 per cent announced by Mr Trump’s economic team on Wednesday, would, if enacted, reduce the tax advantage for US companies to establish subsidiaries overseas.

This is likely to stymie future FDI out of the US to all countries, including Ireland, according to Feargal O’Rourke, managing partner of PwC’s Irish arm.

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However he said he did not expect US companies already established here to leave Ireland, as there would be no incentive for them to do so.

Ibec’s director of policy and public affairs, Fergal O’Brien, also acknowledged that the latest plan, which moves towards fulfilling a key Trump election promise, may pose competitive challenges if implemented, but he pointed out that “there is still a long road to travel in that process”.

He welcomed indications that Mr Trump’s Border Adjustment Tax on imports, which would have particularly affected the pharmaceutical manufacturing industry here, now looked unlikely to proceed.

“There will be plenty of obstacles to overcome to reach implementation stage of the proposal to cut the US headline corporate tax rate to 15 per cent, not least that it represents a massive fiscal cost of $2 trillion over its first ten years,” Mr O’Brien said.

A platform

“Even if the US succeeds in delivering a substantial rate cut, the proposition for US firms to invest in Ireland remains compelling. Fundamentally, the majority of US firms use Ireland as a platform to access the EU and other international markets. This will remain the case no matter what the US tax rate is,” he added, describing the move as “one in a long line of challenges” to our economic model.

The proposed package unveiled by US treasury secretary Steve Mnuchin and Mr Trump's chief economic adviser Gary Cohn, but still not outlined in any detail, will have to be negotiated with Congress and there is no guarantee of the terms of any agreement.

The Minister for Finance, Michael Noonan, discussed the issue with Mr Mnuchin in Washington recently on the margins of the IMF/World Bank meeting. He said last night that it was unclear what the final package would be.

"We really don't know where it will land until we see the detail of it," the Minister said in a statement. Political agreement in the US would be needed, according to the Department of Finance statement and "it also remains to be seen whether any reduction in the US corporate tax rate would be permanent or temporary in nature."

The Department said Ireland’s membership of the EU is, and will remain, a key factor in attracting FDI from the US and elsewhere.

Peter Vale of Grant Thornton agreed that while Mr Trump's plans would make the US a more attractive place in which to do business, US companies would continue to invest in Europe for reasons other than tax. His views were echoed by a spokeswoman for the Irish Tax Institute, who said Ireland would still be attractive for US companies investing in Europe.