US tax plan could still prove to be Ireland’s undoing
That is not to say that back at global headquarters in San Francisco, Google is not anxiously watching the final twists and turns on Capitol Hill as the two houses of the US parliament struggle to finalise the most comprehensive overhaul of the tax system in decades.
Of particular concern is the move by a growing group of senators to cut sharply the value of business tax credits associated with R&D, intellectual property and capital expenditure.
There is a growing group in the Senate who are not happy with how US corporations are using these credits to effectively bring current corporate tax rates well below the current headline rate of 35%.
If the new tax legislation is passed, maximum headline rates will fall to 20%, but with the tax credits applied, the effective rates will fall well below this level.
Google’s 2016 financial accounts show that on its global sales of $90.3bn, it paid $4.7bn in corporation tax — an effective rate of 19%, despite the low level paid in Ireland.
If the new US tax legislation is passed without any changes to the tax credits regime, the effective US corporation tax rate would be slashed to 4% for Google, which spent just under $14bn last year on R&D.
For many companies, particularly those in the technology, pharmaceutical and medical devices sectors, this is a game changer.
Martin Shanahan and his colleagues at IDA Ireland will be worried at this turn of events as it is likely to take the gloss off Ireland as an inward investment location.
Mr Shanahan sees Google as one of the jewels in the crown of inward investment, with employment continuing to expand over the past year to now stand at 7,000 people here.
The number of permanent staff grew by 300 to 3,500 over the past 12 months, with the balance of the increase coming from contract staff.
Although its tax position raises eyebrows in many quarters, the company has been a hugely positive presence in Ireland.
The issue is, of course, of wider concern, as the vast majority of our corporation taxes, our exports sales, and half of our employment in businesses, comes from US multinationals based in Ireland.
The implementation of the new US tax legislation could see a stagnation of growth here, as US corporations seeing no tax advantage here may start to cut back on overseas investment in favour of America first — delivering on Donald Trump’s key campaign promise.
However, lobbying continues in full swing by all the major US companies and we can expect further twists in the legislation before it is sent to the White House for sign off.
House and Senate lawmakers also have to grapple with other potential sticking points, including President Trump’s recent tweet of his preference for a 22% rate and his likely entering into the outstanding issue of tax on repatriation of foreign earnings.
Regardless of which way the US legislators sign off on the new tax bill, the European Union still has major concerns with the level of tax being paid in Europe by digital giants such as Facebook, Google and Amazon and continue to push for them to pay their fair share of tax.
The EU finance ministers last week requested the European Commission to tackle the issue by considering an ‘equalisation tax’ on services provided by the non-resident — hard to tax — digital sector.
This is backed by bigger countries such as France and Germany, but opposed by Ireland and others, who want to wait for co-ordinated action at a global level with the OECD.
John Whelan is an expert in global trade
