Obama plans to axe tax advantages for US firms investing here
Published 08/05/2014 | 02:30
US PRESIDENT Barack Obama plans sweeping new tax reforms that would completely remove the tax advantages available to multinationals investing in Ireland.
Speaking to the Irish Independent on a one-day visit to Dublin, President Obama's chief economic adviser, Jason Furman, outlined plans by the US administration to remove any tax advantages for American multinationals operating in low-tax countries.
Under the proposals, US companies would have to pay a minimum rate of corporation tax on their foreign earnings, regardless of where they were located. This could be offset against local taxes – but in low-tax countries the remainder would still have to be paid, effectively removing the tax benefits of locating in these jurisdictions.
"The president has proposed a minimum tax on foreign earnings that would apply to the earnings of your corporation wherever it operated in the world, with a credit against the local taxes paid," said Mr Furman, chairman of the US Council of Economic Advisors.
"The concept is that if you are investing in a country with a robust tax system, you wouldn't necessarily face any US taxes. But if operating in a country with a less robust tax system, you would have to pay US taxes.
"Part of the idea is that this would lead, instead of a race to the bottom on corporate tax rates, to a more robust system around the world for corporate taxes."
Ireland and other countries should only be allowed to attract US investment based on qualities like the skill of their workforce and their regulatory regime, not taxes, he said.
"If a company wants to come to Ireland for Ireland's talented workers, regulatory regime, access to Europe – that's a really great reason to locate in Ireland. If they're coming here just for the tax rate... it would be more efficient for them to be where they're most productive, not where they're paying the lowest taxes. That's the goal."
The US may also lower its own corporation tax to keep investment at home, he said.
"President Obama has proposed cutting the corporate tax rate from 35pc to 28pc. Leaders in the Republican Party have proposed cutting it to 25pc.
"So those are broadly similar cases of rate reduction. In both cases you would pay for them by broadening the tax base... reforming the way they are collected."
The concept of "stateless companies" that use tax loopholes to avoid paying any tax at all is finished, he indicated.
"I think there has been a very productive conversation from all of the members of the G20 and also at the OECD on how to co-operate. While there are differences of opinions on many issues there is a common understanding that, especially when it comes to stateless income – you know, a company that tells the United States it's in Ireland and tells Ireland it's located somewhere else and doesn't pay taxes anywhere – that's not in the interests of Ireland or the United States."
Harvard and London School of Economics graduate Mr Furman, a member of the team that helped create US universal health insurance programme Obamacare, was in Ireland to speak at the Dublin-based Institute of International European Affairs after representing the US in Paris at the OECD's annual ministerial meeting. There national authorities signed an international set of principals around tax transparency and the sharing of information to prevent tax evasion.
He also touched upon the progress of talks on a monumental free trade agreement between Europe and the US, Transaltice Trade, which is being closely watched by a variety of sectors key to Ireland, including drug manufacturing and beef farming.
"It's a top priority for President Obama," he said, explaining that progress had been plagued by delays because "we are trying to get it right".
Mr Furman added: "It is one of the most ambitious trade agreements in decades. The easiest thing with any trade agreement is tariffs – and tariffs between Europe and the United States are very low already.
"The issues we need to make progress on are the harder issues. Rather than taking a shortcut to a quick deal, we'd rather it be meaningful and ambitious and get it right."
Indo BusinessFollow @Indobusiness