Biden’s foreign tax plan a warning that change is coming for Ireland

Samantha McCaughren

US President Joe Biden is coming for some of Ireland’s tax take. Photo: Evan Vucci/AP

April 04 2021 02:30 AM

Almost any time an executive from a large multinational with sizeable operations in Ireland is interviewed in the media, they are asked the same question – how important is 12.5pc corporate tax rate for locating and expanding in Ireland?

Without fail, they downplay the appeal of the tax rate and point to a host of other reasons why Ireland is the right fit for them. The responses may be comforting, but they have not to date been tested.

However, these claims are set to be put to the test sooner rather later. Indeed, we may also see just how solid Ireland’s relationships with multinationals really are.

Last week, employer group Ibec flagged the shifting mood in relation to the OECD corporate tax reform and a move towards an effective minimum tax rate for multinationals.

And within a couple of days, US President Joe Biden upped the ante considerably by outlining corporate tax plans that would levy a 21pc rate in all foreign earnings of American multinationals.

While Biden’s presidency on the surface looked like great news for Ireland, given how proudly he wears his Irish roots, he had flagged this tax stance on the campaign trail and is likely to move ahead swiftly with election promises given that the Democrats have the Senate… for now. In 2017, Donald Trump brought in arrangements whereby US headquarters had a claim to tax on profits made overseas. Biden appears eager to extend that claim.

As Ibec pointed out, the trend on corporate tax rates globally, which had been falling in recent years, is now very much reversing.

If anything, Covid-19 has underpinned this as countries all over the globe look at ways to raise more funds to meet huge bills for health costs, employment supports and other exceptional pandemic expenditure.

Ireland needs to be vigilant.

There is a school of thinking which is adamant that the mulitnationals locating here come for the tax rate. And there is no doubt that in years gone by Ireland’s attractive tax rate was one of the strongest cards we had to play.

But Ireland now is an extremely well-established centre for multinationals and for the right type of multinationals at that. Any tech company with global ambitions will feel that if it is good enough for Apple, Microsoft and Google, it is also good enough for them.

Ireland has the English language, an Anglo-Saxon legal system, less restrictive labour laws than France or Germany, and relative freedom from corruption compared with lower-cost locations which compete with us.

And despite how much we criticise lots of aspects of living in Ireland – from a lack of public transport to the drinking culture – international workers like coming to work here. The educational system has shown an ability to adapt to the changing needs of employers.

And we offer access to the EU, something which the UK can no longer do.

American Chamber CEO Mark Redmond pointed out last week that in a recent survey 94pc of its members reported that their US headquarters had a positive rating for Ireland as a location for investment.

It would be hard believe that a low tax rate is the driving force for much of the investments by the likes of Intel which recently announced it would employ another 1,600 people as it continues to plough billions into its operations in Kildare.

So, if the playing field is level, will Ireland lose out to other more attractive locations? We may learn soon enough.

Even before Biden’s move, there were plenty of other changes coming down the tracks, with the OECD’s proposed new rules on global taxation potentially resulting in a €2bn hit to Ireland.

What Biden’s comments last week bring home is that the wider tax environment is undergoing a period of change and in the US this is happening quickly.

Ireland is peripheral to both the US thinking and the OECD priorities.

That means that whenever the many aspects to new regimes are agreed, there will be unexpected consequences for Ireland. The last OECD project delivered a surprise boon for Ireland. Our luck can’t continue forever.