Irish expert slams Obama tax plan as 'wrongheaded' Read More
US President Barack Obama has spelled out plans to close corporate tax loopholes on U.S. multinational corporations and crack down on overseas tax havens.
The new move will have serious implications for the Irish economy which is heavily dependent on the multinationals.
Obama spelled out the Irish dependency today when he said that U.S. companies in just three countries; Ireland, Bermuda and the Netherlands, reported one-third of all foreign profits.
At present, U.S companies can avoid paying taxes on profits earned abroad if they put those profits back into their overseas subsidiaries.
Obama's new tax plan is expected to raise $100 billion in revenue over 10 years.
U.S companies have taken advantage of Ireland’s low corporation tax – at 12.5 percent – and invested heavily in Ireland, making the country one of the top locations for U.S investment in Europe.
Ireland’s low corporation tax, which was left unchanged in its recent supplementary budget, has been a source of tension with other European Union countries, who want harmonize corporation tax rates across Europe.
A study in the U.S journal Tax Notes found that from1999-2002, Ireland was the most profitable country for U.S corporations. During those years, profits by U.S companies in Ireland doubled from $13.4 billion to $26.8 billion.
The author of that study, Martin Sullivan, described Ireland as a “semi tax haven” and noted that for that same period, profits for U.S companies in most of the rest of Europe fell.
Major U.S. companies, such as Pfizer in Ireland, lobbied Congress in March to voice their concerns at the changes to the tax code, arguing that it would make U.S firms less competitive.
They said that the proposed changes would mean that their foreign competitors, many of whom are not obliged to pay taxes on the profits they make from their overseas operations, would have a new competitive advantage.
In March, Treasury Secretary Timothy Geithner told the Senate Budget Committee that the changes would make it harder for U.S. companies to avoid taxes.
"Some proposals will focus on the rules in our tax code that put those who invest and create jobs in the United States at a disadvantage,” Geithner said.
“We will propose rules to both reform U.S. corporations' ability to defer foreign earnings and deter high income individuals and corporations from using tax havens to avoid.”
Irish-American businessman Denis Kelleher, founder of money managing firm Wall Street Access, told IrishCentral that the new proposals would have an effect on U.S. investment into Ireland.
"The government is going to need a lot of money to bridge the deficit," Kelleher said, "either by cutting spending or raising taxes. And the preferred way for Democrats is to raise taxes. So they'll go after high earners and try to close loopholes."
However, Kelleher pointed out that Ireland would remain an attractive place for U.S. firms to invest in, because of the country's high level of intellectual capital and because of its low corporation tax.
'Protectionism has never worked," Kelleher said. "We are still in a global economy. Economic realities will decide whether or not U.S. companies choose to stay in Ireland."