Obama deals €2.5bn blow to economy

THE economy has been dealt a serious blow with the US government signalling it is to target €2.5 billion of Irish tax revenues in broad economic reforms.

The proposals announced by President Barack Obama are designed to force American companies to bring profits home to be taxed.

A spokesman for Tánaiste Mary Coughlan said she was monitoring the situation as Mr Obama’s tax plans progressed through the Houses of Congress. Mr Obama wants to close loopholes that allow corporations to park profits in foreign countries.

In Ireland an estimated €2.5bn is paid by more than 580 US companies availing of the country’s low corporation tax rate. 100,000 people are directly employed by those firms, accounting for 70% of all IDA-supported employment. Indirect employment is estimated at over 200,000.

In a fact sheet accompanying Mr Obama’s announcement, Ireland was identified as a tax haven, one of three countries (also Bermuda and the Netherlands) where nearly one third of American corporation profits originate. The new rules, to be introduced from 2011, will make it more difficult for corporations to evade tax by basing themselves abroad.

The IDA said it would have been naive to think the new administration would not react in this way.

“[President Obama] needs to fund his fiscal stimulus package somehow. However, it will take 18 months to two years to bring this through Congress. In that period every US multinational worldwide will be involved in the process, and every international government will be involved including Ireland’s government and ourselves,” the IDA spokesman said.

Green Party finance spokesman Dan Boyle said it was now this country’s responsibility to alter its tax code to soften the blow once the Obama administration’s plans are enacted.

Fine Gael’s Enterprise spokesman Leo Varadkar said Ireland was not a tax haven and the Government must fight to ensure this tag was not applied to us.

Despite the delay before its implementation the plan is likely to hit the Irish economy. The exchequer could lose billions in tax revenue if firms decide it is no longer financially worthwhile to keep their money here. US officials also cited Ireland as an example of a place where jobs have been created that could easily have gone to a US state.

The only likely silver lining from a government perspective is that the administration does make an exception for profits from research and development.

Mr Obama announced the changes, despite intensive lobbying from corporations. Industry leaders claim US companies will be at a disadvantage as they will be subject to double taxation.

It could force US corporations to move their headquarters abroad, business leaders claim. That somewhat unlikely scenario could benefit Ireland.

David O’Sullivan, of the business group the Ireland-US Council, said: “This is going to be a serious issue for Ireland.”