US Congress will determine impact of Biden tax plan on Ireland, experts say

Tax experts say that key negotiations with the US Congress on details of the new tax plan proposed by president Joe Biden will determine the extent of the plan's impact on the Republic. The plan, which proposes a minimum 21 per cent global tax rate on US firms, carries dangers for the State, according to PwC's managing partner Feargal O'Rourke, and could significantly erode the attractiveness of the State's 12.5 per cent corporate tax rate for foreign investors.

As part of a major new economic plan, Mr Biden has proposed the new global minimum rate, effectively an increase in what is known as the US GILTI rate, a charge on international profits, which is currently set at 10.5 per cent. As well as increasing the rate, the president proposes to change the way the charge works, applying it on a country-by-country basis and abolishing an existing provision which allows companies to make a 10 per cent return on overseas assets before any tax kicks in.

Reacting to the news, the American Chamber of Commerce Ireland, which represents US firms in the State, said a vital issue for US companies here was tax certainty. The proposals were at an early stage, it said, and would be subject to discussion and amendment, with strong opposition from US business building.

The combination of the proposed higher global rate and the changes in how it would work could undermine the allure of the State’s 12.5 per cent rate as US companies would also have to pay top-up payments back in the US. However, “there is a lot of politics to get to a final outcome and [a] lot still in play”, according to Mr O’Rourke. Close attention will now be paid to what proposals emerge on the plan in Congress.

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The decision on how tax paid in the Republic can be offset before the US GILTI rate is charged will be vital for the tax plan's impact here, according to Brian Keegan, director of policy at Chartered Accountants Ireland. He said nobody who followed Mr Biden's election campaign could be surprised by the direction of his tax policy announcement, but he acknowledged that Democratic control of Congress does give the president an opportunity to make progress.

Implementation

The key issue now is how much of the programme announced by the president – so far "very light on detail" – is actually implemented, according to Peter Vale, international tax partner at Grant Thornton.The initial changes in the international taxation of US companies under previous president Donald Trump's 2017 tax reform did not have a significant adverse effect on Ireland, he said, but the current proposals could have a big impact.

It remains to be seen what would be implemented, Mr Vale said, with the possibility that these US tax reform plans could be affected by wider international negotiations at the OECD, which also include a proposed global minimum corporate tax rate.

“The phone lines to Washington, DC, will be hopping as Ireland tries to mitigate the worst changes,” according to Mr O’Rourke. “The proposal is concerning and we will need to be actively involved in lobbying US lawmakers, but there is no need for panic at this point,” he said. Had it happened 20 years ago it may have had a big impact on the State’s efforts to attract FDI, he said, but today the Republic’s attractiveness for FDI is wider than tax.

A key issue for the State would also be how other countries’ tax regimes evolve, according to Mr Keegan, who pointed to UK plans to increase their corporate tax rate to 25 per cent. The American Chamber said that factors such as an educated workforce and the State’s innovation record would remain a vital attraction for investment into the country.