US firms could ship profits home

Investment by US multinationals in Ireland next year could suffer as companies take advantage of an opportunity to save on their tax bills while repatriating profits.

The one-off relief will see companies pay tax of just 5.25 per cent on any profits brought back from foreign operations to US headquarters. The normal tax rate for companies in the US is 35 per cent.

The tax break comes as a result of legislation signed into law by President George W Bush just ahead of the recent election. The American Jobs Creation Act provides US companies with a 12-month window to repatriate profits.

Under the legislation, any repatriated profits must be reinvested in the United States to createor retain jobs there.

Accountants Ernst & Young told a conference of US company representatives, bankers and lawyers yesterday that the provision could reduce the amount that US multinationals with existing operations in Ireland invest here in the next year.

It could also delay investment decisions by companies eyeing up the Irish market as large US corporations concentrate on finding uses for the money they have brought home under the rules associated with the favourable tax rate.

However, the accountants warned Irish subsidiaries of US multinationals to be careful that they did not fall foul of Irish company law in their haste to avail of the low US tax rate.

Mr Kevin McLoughlin, director of corporate tax at Ernst & Young said Irish subsidiaries "could breach Irish company law unless their chief financial officers and directors are careful to ensure that the limits on the amount of dividends they can pay are not exceeded".

"In extreme cases, this could cause dividends to be deemed unlawful, which could have serious ramifications for audit sign-off, not to mention the responsibilities of directors under the Companies Acts," he counselled. "While there are opportunities in this legislation, companies must ensure they abide by Irish rules."

Mr David Smyth, head of tax services at Ernst & Young, advised companies to plan carefully to maximise the amount of dividends they could repatriate.