The global chairman of consultancy firm KPMG believes most firms have yet to pull the trigger on their Brexit plans while the prospect of meaningful tax reform in the US remains high given the level of alignment between the White House, Congress and US business leaders.
Speaking to The Irish Times, John Veihmeyer said heightened geopolitical uncertainty on both sides of the Atlantic was depressing economic growth and forcing firms to defer investment decisions.
“The sooner we get greater clarity around tax reform in the US and Brexit, I think, the faster some of the pressure in the system for more robust growth will come to fruition,” he said.
Mr Veihmeyer, who was in Dublin recently for KPMG’s global board meeting, said there was a significant amount of scenario planning going on ahead of the UK’s expected departure from the EU.
He said one of the biggest Brexit headaches would be the potential disruption to supply chains. “The challenge for businesses is trying to project what kind of tariffs might be coming into the mix depending on how the Brexit negotiations go.”
Mr Veihmeyer said supply chains had been built over a number of years based on tax regulations, tariffs and trade agreements, all of which have been cast into doubt.
On US tax reform, Mr Veihmeyer said the priorities of business leaders in the US was to have a territorial tax system, where firms would only pay tax on income earned in the US, and for a lower rate of corporation tax.
US president Donald Trump has already signalled an intention to reduce the headline rate from 35 per cent to 15 per cent.
"If we get tax reform done, the two elements which are non-negotiable and which the House, the Senate, the White House and the business community are completely aligned on, is a territorial system and a getting the headline rate down as low as we can afford," he said.
Corporation tax
The fear for Ireland is that a lower headline rate of corporation tax in the US would encourage more firms to manufacture at home, reducing the flow of US foreign direct investment here.
“That’s an inevitable implication of any tax reform that any jurisdiction adopts,” he said, noting the same fears existed within the US between states when tax changes came about.
Mr Veihmeyer suggested it was too premature, however, to say if Ireland would be negatively affected as the US plan was still being formulated.
On whether the Trump administration would get tax reform across the line given it has had some high-profile policy failures, Mr Veihmeyer noted that US business leaders still retained confidence in the government on regulatory and tax matters.
