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US Tax Reform – Perspectives from Both Sides of the Atlantic
Pictured l-r John Ryan, Head of US Offices, Olivia Long, Professional Support Lawyer, and Michael Noonan TD
The United States Congress is now in the process of a historic tax reform effort. Both the House and Senate have voted in favour of US tax reform and have passed two different versions of the US Tax Cuts and Jobs Bill (the “Bill”). Provided both the House and the Senate can agree on a uniform version of the Bill, it is possible that the Bill will be passed into law before the end of 2017.
If tax reform efforts are successful, the consequences will be felt throughout the global economy, creating new opportunities and risks. Given the strength of the Ireland / US trade relationship, this reform process is being closely monitored in Ireland.
On 7 November 2017, shortly after the first draft of the Bill was published by the House Ways and Means Committee, Matheson in conjunction with the renowned US publisher, Tax Analysts hosted a seminar on US tax reform. At the seminar, hosted at Matheson’s Dublin office, panellists from the US and Ireland discussed the proposals and what they might mean for Ireland.
The key US proposals were covered by Marty Sullivan, Chief Economist and Contributing Editor at Tax Analysts and Alan Granwell, a senior US tax lawyer with Sharp Partners PA in Washington DC. Both have spent time during their careers working with the US Treasury Department.
The Irish Perspective
Michael Noonan, TD and former Minister for Finance led the Irish discussion and gave his personal reflections on the proposals. He welcomed the US tax reform process, something that is considered long overdue: “It’s good to see a tax reform proposal of substance coming to the floor of the Houses of Congress. Nothing significant has been proposed since President Regan’s time in ’85, ’86.”
Overall, Deputy Noonan was “not totally surprised” by the proposals on US corporate tax reform, some of which had been mooted in various guises by previous US Administrations.
The panel discussed both the proposed reduction in the US corporate tax rate from 35% to 20% and the so-called ‘deemed repatriation tax’ – a tax that would apply on foreign earnings historically accrued by US multinationals. In Deputy Noonan’s view: “Neither the US rate at 20% (because of the headroom above our 12.5% rate) nor the deemed repatriation tax, in my view, would affect our capacity to attract inward investment into Ireland.”
The ability to continue to attract US inward investment is an important for Ireland’s economy. Ireland is one of the leading locations for US foreign direct investment with $280 billion invested by US companies in Ireland since 2008. Currently, over 700 US companies operate here and 150,000 people are directly employed by US businesses in Ireland.
The Excise Tax
The proposal that came somewhat as a surprise for both the US panellists and the Irish panellists is the proposed 20% excise tax. This is a tax that would apply on payments made by US companies to affiliated non-US companies. It would be payable on goods acquired by US companies from their non-US affiliates or royalties paid by US companies to their non-US affiliates. It is a partial substitute for the border adjustment tax that had been proposed in Speaker Paul Ryan’s A Better Way tax reform proposal issued in 2016, which was subsequently rejected.
Alan Granwell, a senior US tax lawyer with Sharp Partners PA in Washington DC noted that “This provision is extremely controversial, it is said it will increase the cost of goods in the US and it could violate treaties. We should expect a lot of lobbying on this provision.”
Deputy Noonan flagged the excise tax as something that should be considered further although at this stage there was a lack of clarity on how it would operate. He noted that it could impact those Irish companies with investments in the US. Over 700 Irish companies operate in the US. Those Irish businesses operate in all 50 states and across 2,000 locations. Deputy Noonan noted that: “Of all of the measures, it’s the one that the authorities will be watching immediately but then again, there’s a long way to go in the process.”
Need for Certainty
Certainty was another theme of the discussion. Anna Mulcahy, a Senior Director of International Tax at Dell was one of the Irish panellists. Dell is one of the largest PC vendors in the world. It is headquarted in Texas and employs 5,500 people in Ireland across 27 different business units.
Ms Mulcahy, speaking in a personal capacity, talked about the value for business in having certainty in tax matters: “There are enough challenges that are beyond the control of business, whether geopolitical or related to competition in the market. Adding tax uncertainty to that list is not helpful.” She welcomed the move on US tax reform particularly in the context of advising businesses that typically plan three to five years ahead: “It’s good news that finally there’s a reform proposal that we can work with when advising senior management.”
Broader Irish Tax Landscape
Over the past few years, developments at OECD level and in particular the base erosion and profit shifting project have had a significant impact on Ireland’s tax regime. Deputy Noonan noted that: “Ireland is fully in support of the OECD. As a matter of fact, there are 200 taxpaying jurisdictions in the world and 22 are fully compliant with OECD transparency standards – Ireland is one of them.”
When talking about the ability of Ireland to attract foreign direct investment, Deputy Noonan commented: “It would be a mistake to think that tax is the only consideration when companies are setting up in Ireland. Increasingly, it is the availability of labour, the wage rate, the services, the competitive position, it’s the skillset, it’s the quality of universities, and while tax is an important consideration, it’s only one consideration on a very substantial menu of items to be considered.”
Speaking about the event, Head of Matheson’s US Offices, John Ryan said: “Given Ireland is a jurisdiction that has a strong track record in attracting significant investment by US corporations, US tax reform is something that is closely watched here. We were very pleased to partner with Tax Analysts to offer this event to our clients. Deputy Noonan’s contribution to the evening was particularly well received and his experience as Minister for Finance meant that he provided a very valuable insight.”
Since the event was held on 7 November 2017, both the House and the Senate have passed different versions of a Tax Cuts and Jobs Bill. Over the coming weeks they will attempt to reconcile the versions passed to agree on a final version of the Bill.