The organisation representing US business in Ireland has come out strongly against the decision to abolish the ceiling on employers' PRSI in the Budget. The American Chamber of Commerce Ireland, which represents more than 400 US firms employing more than 60,000 people, expects to see compensatory measures in the coming Finance Bill.
Unless some remedial action is taken, the cost to US companies of creating and upgrading jobs in Ireland will rise, according to Ms M. Claire O'Connor, the chief executive of the organisation. "We are waiting to see what happens," she said. The chamber's warning comes within a week of Motorola's decision to close its factory in Swords, north Dublin, with the loss of 750 jobs. Yesterday it emerged that another US corporation had opted for Hungary over Ireland as the site for a 1,000 high-quality jobs project. Lower labour costs in the Eastern European state were a major factor in the decision.
Despite its low profile, the chamber is seen as the definitive voice of US business in Ireland. As a result, it has considerable muscle which it is not afraid to use. Three years ago it objected to the imposition of a 48-hour working week in line with EU directives on working time. The organisation warned that the changes would discourage further investment by US companies and the Government subsequently introduced amendments to meet their concerns.
The main concession the chamber wants in connection with the PRSI changes is in the taxation of share options, according to Ms O'Connor. The chamber does not accept Mr McCreevy's argument that the additional cost to business of removing the ceiling is offset by reductions in corporation tax. Many of the chamber's members are already paying the low corporation tax rate of 10 per cent and received no benefit from the Budget tax cuts. Changing the taxation on share options would make them a more attractive form of remuneration and allow large employers reduce their overall wages bill by offering packages with an increased share option element.
At present, the recipients of share options must pay income tax on a nominal value attached to the options. High-tech companies want share options to be subject to capital gains. This would have the effect of reducing the tax on share options in most cases to 20 per cent from 42 per cent.
In the Budget, Mr McCreevy removed the ceiling on employers' PRSI contributions, which had been limited to 12 per cent of the first £36,600 of salary. Employers will now have to pay PRSI on the entire salary, which works out at £120 for every £1,000 paid over the threshold.
The impact will be particularly acute on high-tech companies and financial services businesses, which have a large number of staff earning sums above the current threshold. These two flagship sectors of the economy are dominated by US multinationals.
