US tax plans for multinationals could reduce Ireland’s lure

Plan means some US firms here may have to pay top-up tax in US in addition to Irish levy

Donald Trump's move to cut taxes on business has been replaced by a Biden administration looking for tax dollars to fund investment. This is changing the game in terms of the way big US multinationals are taxed – with implications for Ireland. Employers' group Ibec's latest quarterly review outlines the possible implications, concluding that "2021 may yet be a significant year for the tax element of our business model".

US president Joe Biden's plans are wide ranging and go well beyond a desire to push the headline US corporate tax rate back up from 21 per cent to 28 per cent. A planned increase in the tax rate imposed by the US on offshore earnings from intangible assets – the so-called Gilti rate – is one vital element. Janet Yellen, the new treasury secretary, has said she wants to increase the rate from 10.5 per cent to 21 per cent. Crucially, the US plans to impose the tax on a country-by-country basis, removing the ability of companies to "blend" profits coming from different jurisdictions for tax purposes. This means some US companies here might in future have to pay top-up tax in the US in addition to what they pay here, at least on some of their earnings, reducing the attractiveness of the 12.5 per cent rate.

Big companies

Yellen has also signalled a US re-engagement with the OECD process of tax reform, including support for setting a minimum global rate for big companies. The signals, say Ibec, are that if there is a deal it will be for a rate of at least 12.5 per cent. As the Biden administration plans to introduce a 15 per cent domestic minimum for major companies, it could push for this level in the OECD talks.

A global minimum of 15 per cent would reduce the attractiveness of Ireland’s 12.5 per cent rate, and would leave Ireland with a decision of whether to increase to that level. The rate on offer here would still be less than in many other countries, but taken together with the impact of the domestic US reforms it would signal a big change – and significantly reduce tax as a factor in trying to attract firms to locate here.