Obama tax plan: Read More
New tax rules proposed by the U.S. Administration would seriously damage Ireland’s economic relations with the United States by effectively canceling Ireland’s low-tax deal for corporations.
And, there can be little doubt that the Emerald Isle is a clear target of the proposed new tax measures because Ireland is specifically mentioned upfront in the U.S. Treasury Department’s press announcement.
The Treasury Department statement noted that “nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands, and Ireland.”
The Administration plans to raise over $100 billion by removing tax advantages for investing overseas. They will achieve this by reforming deferral rules which allow businesses that invest overseas to take deductions on their U.S. tax returns for expenses supporting their overseas investments and defer paying U.S. taxes on the profits they make from those investments. Under current law, U.S. companies can defer taxes indefinitely on the profits they say they have earned overseas until they "repatriate" those profit dollars back to the U.S.
Lying at the bottom of the argument in favor of passage of this tax reform package is the allegation that Ireland (and other low-tax countries) are stealing jobs from America by encouraging investment by U.S. companies to move overseas. The White House and Treasury Department announcements make this point openly.
However, Ireland’s case is simple enough- the customers and markets served by the operations established overseas by U.S. corporations could not be served from American factories or bases. These operations would be sited abroad anyway because that’s where their customer base is.
Paradoxically also, many economics studies have shown clearly over time that the companies who benefit most from tax deferral regulations are the companies that are tops at growing their employment numbers in the U.S. – a stark counterpoint in the “stealing jobs” argument.
Ireland wins out in the competition for these industrial investment location decisions for many reasons – top of the list being a favorable tax environment. Other factors include tariff-free access and proximity to large customer markets, skills and education, political stability, and a welcoming attitude by the Government in Ireland. With these proposed new tax laws, the Irish tax break would effectively be wiped out.
The mooted measures are likely to spark debate on Capitol Hill about some important issues. These include boosting protectionism at the worst possible time; increasing the competitive disadvantage for American companies when their earnings and sales are under pressure; and, paradoxically, driving even more investment overseas because of these sweeping new rules.
A recent study by The Wall Street Journal examined securities filings of more than two dozen big companies. Ten of the largest companies accumulated nearly $58 billion in overseas earnings during 2008, representing about $20 billion in potential tax revenue. Total U.S. corporate tax receipts last year were around $304 billion. Clearly, there will be intense opposition to these proposed new rules from companies that generate big earnings offshore.
Of course, Ireland will also marshal its arguments for members of Congress to highlight how counterproductive and wrong-headed these suggested tax changes are. This debate has only just begun.
The US-Ireland Council is a business organization and was founded in 1963 by business leaders in America and Ireland. Its principal objective is to encourage business links between America and Ireland, North & South. The Council maintains offices in New York City and in Dublin.