Irish winners and losers in US tax cut plan

Food firms to benefit but IDA will be rattled, writes John Whelan

Martin Shanahan: The CEO of IDA Ireland could face a battle to continue to attract multinational investment here

The US Republicans last week launched their much-heralded tax reform plan, originally promised during US President Donald Trump’s election campaign.

With Mr Trump under fresh pressure from many within his own party, bringing forward tax legislation was high on the Republican agenda.

There are many hurdles before the bill will reach the Senate but it has been generally welcomed. Passing the sweeping tax reform could see the bill land on Mr Trump’s White House desk by Christmas.

American businesses who have been pilloried by the president for expanding abroad will welcome the move, but so will foreign-owned businesses that have operations in the US, who stand to see their corporation tax reduced by a third.

And US businesses that had been keeping profit overseas will now are able to bring the money back to the US and pay only a 12% tax on the repatriated funds.

Ireland’s investment stakes in the US are significant, with Irish affiliates generating an estimated €82bn ($95bn) in sales.

Food companies such as Glanbia, Kerry Group, Greencore, and CRH stand to gain substantially, which should be reflected in their share prices.

But IDA Ireland, who over the decades managed to attract large numbers of US corporations to locate their operations here, will worry that the tax lure for locating to Ireland may be undermined.

Since 2000, only the Netherlands has attracted more US capital than Ireland.

The proposals come in a “framework” that will reduce income taxes for all and dramatically reduce corporation tax levels.

The White House says the framework will boost business and help middle-class Americans without giving the wealthy a tax cut. The package contains business-friendly measures: Cutting the corporate tax rate to 20% from 35% and levying non-US earnings by corporations to 12%.

Slashing the corporate tax to 20% and largely ending the blockages to repatriating non-US earnings will give a major boost to both American corporations and also to foreign businesses with subsidiaries in the US.

Republicans and Democrats have been interested in reforming the corporate tax code for a long time. But it’s complicated and a mess.

The very thing that makes it complicated — the sheer number of deductions and loopholes for certain industries and companies — makes it extremely difficult to alter without angering loud and rich constituents.

Former president Barack Obama’s proposals went nowhere. Mr Trump may get his tax reform plan because of the bipartisan support in the Senate.

In theory, a low corporate tax rate and a straightforward tax code should attract more investment and discourage multinationals from shifting their profits around the world to avoid taxes.

Mr Trump’s tax reform plan will rattle the IDA’s basis for success, which works on a globalised view of the world where firms scan the world for the best places to serve customers, access talent, find innovation and secure the best tax efficient return on their investment, with Ireland punching above its weight on all these scores.

Urgent change in government policy away from the relying on foreign investment appears overdue.


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