Obama planning to tax US firms' foreign profits in blow to Ireland
US President Barack Obama has proposed a tax on profits earned by American companies overseas, a move which could have big ramifications for firms based in Ireland.
In his 2016 budget, Mr Obama proposes a 19pc tax on US companies' future foreign earnings and a one-time 14pc tax on roughly $2 trillion (€1.6trn) of profits being held offshore, the White House said yesterday.
Revenues from the one-time tax would be used to fund infrastructure projects and fill a projected shortfall in the Highway Trust Fund.
The United States' inability to tax earnings by American firms located elsewhere has become a political football in recent years - and Ireland has been heavily criticised because of its low corporation tax regime.
Powerful US Senator Carl Levin has repeatedly called Ireland a "tax haven" and accused the Irish Government of giving a "special deal" to Apple that allowed the tech firm to pay a corporation tax rate of only 2pc.
Ireland has denied giving any special tax deals to companies.
While Ireland attracts US firms for many reasons - such as its time zone and the fact that it is English speaking - the generous corporation tax regime has also played a large role. If Mr Obama was to tax overseas earnings, it would be one less reason for US firms to base themselves here.
The budget, which is set for release today, is as much a political document as a fiscal roadmap. It requires approval from Congress to take effect and full approval by the Republican-controlled legislature is very unlikely.
The White House has long been critical of practices by US companies that it views as avoiding tax responsibilities at home. The proposals are part of a broader tax reform package that the Obama administration hopes will re-focus tax advantages toward middle-income Americans.
"This transition tax would mean that companies have to pay US tax right now on the $2trn they already have overseas" a White House official said.
The corporate tax rate is 35pc but loopholes allow many major corporations to avoid paying altogether. Foreign corporate earnings can be held offshore for years if they are classified as indefinitely invested abroad.
Research firm Audit Analytics said in April 2014 that the total of such earnings exceeded $2.1trn, up 93pc from 2008 to 2013.
At that time, General Electric had the most stored abroad, at $110bn.
Next were Microsoft, with $76.4bn, Pfizer with $69bn, Merck with $57.1bn and high-tech group Apple with $54.4bn, it said.
All four firms have significant Irish businesses. (Additional reporting by Reuters)