Biden's tax plan 'will weaken Ireland's appeal for new US investments'
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President Joe Biden's corporate tax plans will have a significant effect in blunting the appeal for multinationals to set up in Ireland, UCC economist Seamus Coffey has warned.
Mr Coffey, a former head of the Irish Fiscal Advisory Council and author for the Department of Finance of key corporate tax study, is one of the country's leading experts on corporate taxation.
He predicts that President Biden's plans for the US companies to pay a minimum tax rate on a country-by-country will in time weaken the lure of Ireland's 12.5% tax regime to attract huge US company investments.
Ireland has increasingly come to rely on taxing US multinationals to help meet the bills. A handful of US multinationals based here account for lion's share of the €11.8bn the exchequer collected in corporate tax revenues last year. Company taxes now account for 20% of all the Government's tax revenues.
Ireland is already grappling with big changes driven by the OECD in the way multinationals are taxed around the world.
President Biden now proposes to partly reverse President Donald Trump's 2017 tax cuts by hiking US corporate tax to 28% from 21%, which on the face of it would appear to have no significance for Ireland's tax regime to attract US multinationals.
However, part of the Biden plan is nonetheless significant because it proposes to bring Trump's minimum tax rate to 21% from 10.5% and plans to apply the new rate on the basis of the profits a US company generates country-by-country, and not on a global average or blended rate.
From the US company's point of view, the global tax it pays to the US was set at a minimum and then it could offset the high income in one country with the low income in another country such as that paid in Ireland. For the company, and it was a matter of getting the global average up to the minimum headline rate of 10.5%.
Since 2017, under the existing scheme, there is still an incentive to generate profit in low tax jurisdictions because the US company can offset the higher taxes it pays in other countries.
"The absence of blending significantly reduces the attractiveness of low tax regimes," Mr Coffey said.
The difference in the Biden proposal is that there will be no global blending "and that is significant", he said. "The rule change is not going to change the amount of corporation tax paid in Ireland," Mr Coffey said.
Brian Keegan, director of public policy at Chartered Accountants Ireland, said that past experience showed that reform of global tax reform had had the opposite effect of increasing exchequer revenues.
Gerard Walsh, a partner at Grant Thornton, said it was unclear what level of overseas tax will be deemed to qualify for the minimum tax from the details of what had been released so far.
PwC tax partner Peter Reilly said that the US proposal although "not ideal for Ireland" doesn't undermine the 12.5% rate competitive tax regime.