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Biden tax plan looks like blow to Ireland’s FDI model

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US President Joe Biden

US President Joe Biden

US President Joe Biden, flanked by Vice President Kamala Harris . Photo: REUTERS/Jonathan Ernst

US President Joe Biden, flanked by Vice President Kamala Harris . Photo: REUTERS/Jonathan Ernst

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US President Joe Biden

US President Joe Biden has outlined corporate tax plans that will end the key attraction of Ireland’s 12.5pc rate for multinationals by levying a 21pc rate in all foreign earnings of American multinationals. 

The new US administration has announced a $2.3trn (€2trn) pending programme to lift the US out of the Covid pandemic and to roll out massive physical and social infrastructure programmes. President Biden plans to pay for the project by hiking corporation tax including on US multinationals’ offshore earnings.

The spending plans cover everything from fixing 10,000 bridges to tearing lead pipes out of millions of homes in the United States and dramatically improving public transport. The tax plans aim to bring a bigger share of multinationals’ global intangible low-taxed income (GILTI) tax into the US federal government’s coffers.

“The key thing is that US companies would pay 21pc on foreign earnings,” according to Ibec chief economist Gerard Brady.

The fact that a 12.5pc rate applies here would not matter in reducing US firm’s overall tax bill, he said.

“The 12.5pc tax rate might not be what we sell the country on in future,” he said.

Access to skilled staff, which can reflect quality of life and quality of infrastructure, educational standards and openness to inward migration may become relatively more important considerations and tax less important in a decision to base jobs in Ireland or the Netherlands, for example, Brady said.

However, Peter Vale of Grant Thornton said that the medium-term effects of tax changes are hard to predict.

Ireland resisted global changed to tax rules on the issue of tax base erosion and profit shifting (Beps) but has turned out to be a winner from a development that moved intellectual property assets out of zero tax jurisdictions and into low tax locations where corporates have substantial activities.

Mr Vale said it was likely to be a number of years before President Biden’s proposals make it through the US legislature and that the final detail would be important.

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President Biden’s plan includes reversing Donald Trump’s 2017 corporate tax cut. The US corporate tax rate would go back from 21pc to 28pc. In addition, the US will collect a 21pc global minimum tax on corporate profits, calculated on a country-by-country basis to reduce any benefit of channeling money through tax havens.

An exemption from taxes for companies on the first 10pc of global earnings will be scrapped. The plan needs to get through the US Congress, but has enough support that at least some version of it is likely to be carried.

Ibec’s Gerard Brady said it will not mean US multinationals no longer invest in Europe, but will potentially change the mix of features they look for when they choose an overseas base.

The US tax plan also includes eliminating all fossil fuel industry subsidies and loopholes.

The reforms could add 0.5pc to US GDP per year in corporate revenue, which the White House says will fully pay for its investments over 15 years, and after that help reduce the government deficit.

The size of the package will make the US government a bigger and more active player in the domestic economy.

News of the scale of what is planned lifted US stock markets, regardless of any prospect of higher taxes.

The plan includes $621bn for infrastructure, such as roads, bridges, highways and ports, including a historic $174bn investment in an electric vehicle charging network by 2030.

There is $400bn for affordable home or community-based care for older people and people with disabilities, $213bn to retrofit affordable and sustainable homes along with hundreds of billions to support US manufacturing, bolster the electric grid and for nationwide high-speed broadband.

Additional reporting: Reuters


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