Concern that Washington may alter laws to keep fiscal income
THE decision by two large American firms to merge and locate their combined operations in Ireland for tax purposes could add momentum to US efforts to overhaul the tax code, it was reported yesterday.
Dublin has long been concerned that Washington may change the tax laws to discourage US companies from moving to Ireland.
Two years ago, a senior Irish official was given the job of lobbying US politicians to discourage changes to the law.
The latest disquiet in Washington follows news that Eaton, a century-old car parts maker, will pay $11.8bn (€9.2bn) to buy Cooper Industries which makes lights and other electrical products.
The deal involves a complicated corporate structure and will allow the new company to become part of an Irish corporation and enjoy our 12.5pc corporate tax rate. That will lead to $160m in annual tax savings for the combined company. Neither company has any deep links with this country.
Reuters said yesterday that the deal led Republicans in Congress to argue that the 35pc corporate tax rate in the US was driving companies to drastic measures.
A representative for the influential Republican-majority controlled Ways and Means Committee called Eaton's move, "a stark reminder that having the highest corporate tax rate and an outdated system of taxation is sapping our competitiveness in the global marketplace". The US tax authorities have declined to comment.
The US Congress is inching toward a broad corporate tax code overhaul. In what could be a painful drain on the US treasury over time, at least seven US companies in recent months have chosen through acquisition or merger to renounce their US corporate citizenship by relocating to Ireland, the Netherlands, Switzerland or other lower-tax countries.
"There have been more of these in the last two months than in the five years before," said Bob Willens, an independent tax analyst.
Eaton chief executive Sandy Cutler said in an interview that synergies, not tax reduction, were the primary motivation for the deal. Still, it is clearly structured to ensure the joint company will be Irish.
Cooper Industries was a US company until 2002 when it moved to Bermuda. It was part of a wave of corporate relocations that sparked congressional legislation to try to stem the departures. In 2009, Cooper changed domicile a second time, to Ireland. (Reuters)