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US Tax Reform Update

  • Ireland
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06-09-2017

Gang of Six Steps to the Plate on US Tax Reform, Drops the BAT

In June of 2016, House Republicans issued a blueprint outlining broad US tax reform principles (the “Blueprint”).  The centerpiece of the Blueprint was the Border Adjustment Tax (the “BAT”), a destination-based cash flow tax intended to replace the US corporate income tax.  The Blueprint and the BAT did not receive much attention when issued, but upon the election of Donald Trump and a unified Republican government, the Blueprint became, by default, the US tax reform proposal and the BAT became its most controversial element.  US and non-US taxpayers have spent much of the past year contemplating how the BAT would impact their businesses, and non-US governments weighed in on its international implications with many arguing that it would violate WTO standards.  

On July 27, 2017, the “gang of six,” representing the Trump administration and Congressional Republican leaders, issued a statement on US tax reform.  The gang of six is comprised of House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch and House Ways and Means Committee Chairman Kevin Brady.  The statement promised that the two tax-writing committees, House Ways and Means and Senate Finance, would draft legislation resulting in comprehensive US tax reform this fall.  While the principles for such tax reform outlined in the statement were generic, the statement was noteworthy in announcing that Republicans were abandoning the BAT.  

On August 30, 2017, President Trump gave a speech urging Congress to back “pro-American tax reform.”  President Trump observed that the US taxes businesses at much higher rates than many other countries, specifically mentioning Ireland as a jurisdiction with lower tax rates, and reiterated his desire to bring US business tax rates down to 15%.  While the speech did not include any new specific measures, President Trump outlined his four principles for tax reform: (i) a simpler, fairer and more understandable US code; (ii) a US tax code that creates more jobs and higher wages for Americans; (iii) tax relief for middle-income families; and (iv) repatriation of trillions of dollars of offshore earnings. 

Comprehensive US tax reform has potentially significant impacts on taxpayers across the world.  Taxpayers and their advisors will need to carefully scrutinize any such legislation to determine its potential impact on their businesses.  Pending more information on the approach that will be taken, it appears existing incentives for US multinational corporations to conduct certain operations in favorable jurisdictions will continue.

Ireland Remains an Attractive Jurisdiction for US Multinationals 

In this respect, Ireland remains a very favourable jurisdiction for US multinationals doing business from, or looking to establish, a European base (particularly post Brexit), as such corporations continue to enjoy the combined benefits of Ireland’s EU approved low tax regime and, subject to applicable anti-deferral rules, the deferral of US taxes until the related profits are repatriated back to the US.

Since joining the European Union in 1973, Ireland has developed a small, open, pro-business economy which continues to offer significant opportunities as a gateway into the European market and beyond for US multinational corporations.  Typically, such multinational corporations looking to avail of Ireland’s 12.5% corporation tax rate will establish an Irish incorporated limited liability company as a trading platform for the European / EMEA area. Provided the Irish company has a sufficient level of substance and activity, it will benefit from the 12.5% corporation tax rate on ‘active trading’ income across all business sectors.

In addition to this low headline corporation tax rate, Ireland offers a competitive physical, regulatory and commercial framework within which to do business. Ireland is an English-speaking, EU and Eurozone member with a common law based system of law. Ireland’s EU membership offers the benefit of free movement of goods, people and capital within the EU area to companies established in Ireland. Ireland’s membership of the Eurozone means that foreign exchange issues can be managed from a single location for a large section of the European market.

Ireland also offers an attractive headquarter / holding company regime which provides an exemption from Irish tax on the sale of certain subsidiaries and an advantageous treatment of foreign dividend income. In addition, corporates which decide to carry on a trade of developing  intellectual property rights globally through an Irish base can avail of additional tax benefits including tax relief on the acquisition of intangible rights, a significant R&D tax credit and, a BEPS compliant Patent Box regime which taxes relevant profits at 6.25%.

Ireland has a very tax efficient regime for  international financial services companies particularly, in the area of funds where it is a favoured jurisdiction for the administration and management of funds in Europe. Regulated funds are generally exempt from Irish tax at the fund level and a number of exemptions exist for re-domiciling funds to Ireland. There is also a very efficient regime for structured finance transactions including securitisations, aircraft leasing and other asset financing.

All of these factors leave Ireland ideally placed to provide a low corporation tax rate profit centre for the European / EMEA operations of US multinational corporations.  While the full detail of US tax reform and its potential impact is awaited,  Ireland remains committed to ensuring that its tax offering remains competitive, certain and compliant with international standards, in order to remain a first choice platform for international investment and expansion projects of US multinational corporations.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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