US to tax non-resident American-based companies

Mr Benevolent

There's a thread on this in AH, but it's full of the usual AH replies. Will this really be a problem for Ireland? Can these companies actually be double-taxed by both countries? It sounds like this is a real spanner in the works for some of the big US companies here, especially Microsoft and Intel.

sink

It doesn't make any sense, it will just put US companies at a disadvantage to foreign rivals. It might even be good for Ireland by allowing domestic companies to undercut US firms.

Senna

sink wrote: »

It doesn't make any sense, it will just put US companies at a disadvantage to foreign rivals. It might even be good for Ireland by allowing domestic companies to undercut US firms.

But cant most of them up and move very easily, even a few years into this economic mess, Ireland will still be more expensive to do work in compared to other countries. It might not force all multi nationals back to the US, but it wont make Ireland attractive.

sink

Senna wrote: »

But cant most of them up and move very easily, even a few years into this economic mess, Ireland will still be more expensive to do work in compared to other countries. It might not force all multi nationals back to the US, but it wont make Ireland attractive.

The American multinationals are here to access the EU common market, they can't do that from the US at the same cost. EU companies can supply the internal market and only have to pay domestic taxes, US companies will have to pay European and American taxes pushing up their costs and lowering their competitiveness.

Senna

sink wrote: »

The American multinationals are here to access the EU common market,

But they can also do that from one of the other 26 EU counties, most with a lower cost base to here. I can only hope that cost drop here drastically before 2011.

sink

Senna wrote: »

But they can also do that from one of the other 26 EU counties, most with a lower cost base to here. I can only hope that cost drop here drastically before 2011.

But that's not really relevant to the proposals put forward by the Obama administration.

Tech3

So when is this coming into effect?. Will it effect the american companies based in Ireland at this current time or new startups?

Senna

sink wrote: »

But that's not really relevant to the proposals put forward by the Obama administration.

Right maybe i'm missing something here, but under the proposal, US companies will have to pay more taxes to the USA when doing business in other countries. This greater expense might make current companies operating in Ireland look as their costs here and realise that by moving to another EU country they will still have to pay more to the US, but their costs will be less than if they continued operating in Ireland.

Its just going to expose Ireland's lack of competitiveness at a time when multi nations will be hit with more expenses.

Joey the lips

I heard this news on the radio this morning. There is talk of how the current system only works when repatriating profits back home. If the us does away with this repatriating profit and taxes the company where ever it is I would imagine this gives US companies no further incentive to be abroad other than low corporation tax and if the us match this tax or beat it then common sense say's that the companies would move back to the US.

Why I think this is futher interesting is that it can actually help the us reduce its balence of trade deficit but the real target should be its chinese market.

Flamed Diving

If the tax is a flat rate, applied to companies irrespective of where they locate and the local corporation tax there; then I don't what extra discriminatory factor this would bring.


Or maybe it is just too early for me to think of one.

Économiste Monétaire

Ron Davies comments on the implications for Ireland here.

eamonnm79

I would love to know the % of our Exports is down to US multinational export within ireland to Europe and beyond. I bet its very sizable and I think that Some multinationals, especially software exporters (again a very large chunk of our exports) will have to look at moving to other low cost areas. Any regular viewers to bloomberg will see the adds they are running on behalf of Macedonia, no less, with regard to macedonias multinational friendly policies.
Many US hedge fund financials also moved from uk to here specificly due to the corpo tax. Could they now move back? This announcement is massive and hugely worrying IMHO.

eamonnm79

Économiste Monétaire wrote: »

Ron Davies comments on the implications for Ireland here.

I know i am being very pesimistic (not actually my natural persona) but I think micheal hennigans replies are much more interesting than the actual article.

eamonnm79

From Michael Henigan of Finfacts


There will be intense lobbying against the proposals but opposition from say the two Democrat senators from California will probably be offset by some Republican support in an election year.

It will certainly have some consequences.

An amendment to the stimulus bill in February, introduced by California Democrat Barbara Boxer and John Ensign, a Nevada Republican, to allow a second tax amnesty (the first one was approved in 2004) on repatriation of profits, had been rejected by 55 votes to 43 in the Senate.

The use of Ireland as a corporate tax haven has been significant.

US Bureau of Economic Analysis data shows that the combined net profit of US corporations in Ireland was $8.58 billion in 1997, $13.39 billion in 2000 and reached $31.3 billion in 2003 - - despite a slowing in activity because of the high tech bust. The $48 billion net profit in Ireland in 2005 compares with $37.01 billion in the UK and $74.06 billion in the Netherlands. US companies in Germany reported net profits of $11.22 billion in the same period while French operations made $9.52 billion and their Italian operations made $8.58 billion.

In 2005, US tax expert Martin Sullivan did an analysis on what he termed a $4.8 billion tax subsidy, which was the equivalent to an economic development grant from the US Treasury payable in part to the Irish government and in part to corporations investing in Ireland. He said of the $18.3 billion of profit reported by Irish subsidiaries of US multinationals in 2002, $13.7 billion did not belong there. With a statutory tax rate of 12.5%, Ireland collected approximately $1.7 billion of extra corporate tax on that shifted profit.

“That’s pure gravy for the Irish Treasury. At the same time, US corporations enjoyed a 22.5% lower rate (35% minus 12.5%) as a result of shifting income from the United States to Ireland. On $13.7 billion of profit, that is a tax reduction of $3.1 billion. Combining the two, the total US subsidy for Ireland attributable to profit shifting in 2002 equals $4.8 billion,” Sullivan said.

nesf

eamonnm79 wrote: »

I know i am being very pesimistic (not actually my natural persona) but I think micheal hennigans replies are much more interesting than the actual article.

I disagree, much of the problem with FDI discussion in this country is that it's wholly focussed on our tax rate and ignores the other fundamentals that affect FDI investment. Ron's article is good precisely because it tries to broaden the debate.

eamonnm79

nesf wrote: »

I disagree, much of the problem with FDI discussion in this country is that it's wholly focussed on our tax rate and ignores the other fundamentals that affect FDI investment. Ron's article is good precisely because it tries to broaden the debate.

IF 3/4 of American profits made in Ireland did not actually belong in Ireland and they reported in 2005 that American firms reported 48billion profit here. it means that American profits in Ireland were overstated by 36billion. Assuming that is correct would it have inflated our GDP figure by much that year?
If Obama is going to force Companies to declare profits where they are earned what would the effect on our reported GDP be?

eamonnm79

nesf wrote: »

I disagree, much of the problem with FDI discussion in this country is that it's wholly focussed on our tax rate and ignores the other fundamentals that affect FDI investment. Ron's article is good precisely because it tries to broaden the debate.

In January 2007, the then Microsoft Ireland Managing Director Joe Macri said that the Republic of Ireland’s corporation tax rate was the prime reason why multinational companies choose to remain in Ireland. While access to the EU and the availability of cheap labour were key factors in attracting foreign investment here 20 years ago, these have largely been eroded by rising costs, falling productivity and the enlargement of the EU to central and eastern European countries, he said, adding: “That leaves us with tax.”

nesf

eamonnm79 wrote: »

In January 2007, the then Microsoft Ireland Managing Director Joe Macri said that the Republic of Ireland’s corporation tax rate was the prime reason why multinational companies choose to remain in Ireland. While access to the EU and the availability of cheap labour were key factors in attracting foreign investment here 20 years ago, these have largely been eroded by rising costs, falling productivity and the enlargement of the EU to central and eastern European countries, he said, adding: “That leaves us with tax.”

Indeed, but why would said head of Microsoft say anything that might reduce the perceived importance of our low tax rate. He's hardly going to admit, even if it was the case, that they don't need it. The business lobby group is very protective of their gravy train etc.

Flamed Diving

Is it a flat tax rate, with respect to which country they operate in? Or do you get a higher tax if you operate in a lower tax regime?

Économiste Monétaire

Flamed Diving wrote: »

Is it a flat tax rate, with respect to which country they operate in? Or do you get a higher tax if you operate in a lower tax regime?

Here's the only information on the policy.

Hasschu

Large multinational corporations engage in internal trading to reduce taxes. For example a company can now do paper transactions by selling product from the US company to a shell company anywhere at or near the cost of production. The shell company then resells the product to a subsidiary in a low tax regime that has a tax treaty with the US (Eire) with little or no markup. The low/treaty tax regime subsidiary books all the profit which can be used indefinitely offshore with no further tax paid until the profits are repatriated to the US. To put the kibosh on this it is only necessary for the US to tax offshore profits when they are made not when they are repatriated. An even greater threat to world trade is protectionism. A Canadian company sold plastic piping to a contractor working on a US military base called Camp Pendleton, foreign supplies were not allowed under the US government contract and the contractor was forced to take out all the piping of foreign origin that was installed. Events like this are becoming common as are contracts with "Buy American" stipulations. Ireland's only hope is that it is part of the EU and events like the ones in 1932 (duties up to 60%) when the US slammed the door on imports of Irish goods and services are much less likely to succeed.