It appears that US Republicans’ push to implement historic tax changes is about to happen, with many of the new rules taking effect from 1 January 2018. Given that tax competitiveness has historically been crucial to Ireland’s FDI strategy, should Ireland Inc be worried?
Whilst the complexity and the knock-on effects of the new US tax rules have yet to be fully digested, the main changes are certain to make some aspects of the US tax regime more attractive for corporates. The headline corporate tax rate will fall to 21% (c.26% when State taxes are also included). This is a long overdue change for the US, where the 35% rate was far too high in comparison to international norms. A temporary provision allowing generous tax depreciation on certain capital asset expenditure will reduce the US effective tax rate further. Base Erosion Anti-abuse Tax (BEAT) is designed to discourage certain payments by large US companies to foreign affiliates – and to encourage more spending in the US. The move from a worldwide tax system with deferral to a territorial system with participation exemption could in theory reduce the tax advantages of foreign subsidiaries – but in many ways this was already achieved by the old US CFC rules – so it remains to be seen if the new rules will have a major impact. Finally, there are a number of new rules designed to make it more attractive to place intellectual property in the US, rather than abroad – possibly taking some of the gloss off Ireland’s well regarded IP tax regime.
So where does this leave Ireland? US businesses that are already here have learned that “you come for the tax, but you stay for the talent”, so it is highly unlikely that the new US regime will impact their presence here.
Luckily, when encouraging new businesses to locate here, tax is far from Ireland’s only selling point – our excellent infrastructure, a well educated and productive English-speaking work force, a longstanding track record of having a business friendly environment and a time zone that is a sweet spot for bridging the US and the EU are only some of the reasons for choosing to do business in Ireland. These fundamentals have not changed. The recent Coffey Report also highlighted that international tax is a constantly evolving platform, and the Irish regime is a dynamic one, and will continue to adapt to challenges from abroad. So, has the decision for US businesses to expand into Ireland been made more difficult? Yes. However, expansion into new territories is a commercial imperative for growing businesses and in many cases, Ireland is still the answer to that call.
With new choices available, in many ways the future for the US and Irish organisations is brighter than ever. As the full impact of US changes takes shape, we look forward to helping businesses understand the new environment and to make the right decisions to grow their enterprises on the international stage.