United States Tax Reform and its Impact on Ireland

18 May 2017

In April, President Trump set out his proposal for tax reform which included significant tax cuts. For businesses the plan includes:

  • Reducing the federal corporate tax rate from 35% to 15%. (State taxes of up to 5% will continue to also apply).
  • A one-time tax on all profits held offshore by US companies and their subsidiaries in order to encourage companies to bring these funds back to the US and
  • A move from a worldwide system of tax to a territorial system of tax.

The proposals, if enacted, could result in a far more competitive US corporate tax rate and could well lead to a boost to the US economy. A low corporate tax rate should to some extent discourage multinationals from shifting their profits around the world for the sole purpose of avoiding high corporate US taxes. This move by the US reflects the trend in many countries to increase their competitiveness through lower corporation tax rates.

The lower US tax rate will also make it easier for Irish based businesses to set up operations in the US.

So what do the proposed reforms mean for US investment into Ireland?

Ireland’s 12.5% corporate tax rate will still be more competitive than the US rate.

In addition, the impact of a switch to a territorial system could boost Ireland’s attractiveness – a point that has been missed in much of the commentary, which centred on the change to the headline rate. In essence, a territorial system means that US multinational groups would pay tax in Ireland and be able to repatriate profits tax efficiently back to the US - this would in fact be an improvement on the current system which aims to tax Irish profits in the US, either when they arise or when they are repatriated to the US.

In any event, Ireland’s corporate tax rate is only one of a number of compelling reasons to invest in Ireland. Our talent pool, technology base and track record are equally convincing reasons for businesses to successfully expand into Ireland. Added to that, our education system, easy access to Europe and our English speaking economy will remain winning factors that make Ireland the choice for international expansion.

Importantly, the reform did not include any reference to the “border adjustment tax” present in earlier drafts, which would have imposed a tax on goods imported into the United States and increased incentives for US exporters. Such reform would have had a significant negative impact on world trade.

The question also arises – how will US tax rate reductions be paid for? Changes in the headline US corporate tax rate may come at a cost elsewhere.

In conclusion, while negativity surrounded the build up to the announcement of these reforms, when the full context of the proposals is looked at, a positive picture for Ireland emerges.


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