Apr 16, 2021

The US is looking to level the playing field regarding corporation tax worldwide with a higher minimum tax rate than is currently enjoyed by US multinationals in Ireland. Anthony O’Halloran explores what that could mean for Ireland Inc.

The recently published Made in America Tax Plan proposes several US corporate tax measures to address perceived profit shifting and offshoring incentives. There is a view that the US needs to level the playing field between domestic and foreign corporations. Proposed measures include:

  • raising the corporate income tax rate to 28%;
  • strengthening the global minimum tax rate for US multinational corporations;
  • encouraging international adoption of robust minimum taxes;
  • enacting a 15% minimum tax on the book income of large companies that report high profits but have little taxable income;
  • replacing incentives that are viewed as rewarding excess profits from intangible assets with more generous incentives for new research and development;
  • replacing fossil fuel subsidies with incentives for clean energy production; and
  • ramping up enforcement to address corporate tax avoidance.

In their current form, the US tax proposals are certainly far from a done deal and will need to navigate both the Senate and the House of Representatives. In the Senate, the Democrats have 50 of the 100 seats, with Vice President Harris casting the tie-breaking vote when needed. In the house, they have a majority of ten members. With midterm elections coming up in 2022, the politics of gaining the necessary political support to broker a deal may prove considerably challenging.

The implications for US multinationals in Ireland

The proposed changes to the US anti-deferral rules under Global Intangible Low Taxed Income (GILTI) tax and the proposed repeal of the Foreign Derived Intangible Income (FDII) regime are likely to have the most significant impact for US multinationals with operations in Ireland. President Biden’s proposed changes to the existing GILTI tax rules and the proposal to move to a minimum effective tax rate on a country-by-country approach rather than a global blended rate more closely aligns with the Organisation for Economic Co-operation and Development (OECD) rules for minimum tax currently being designed under Pillar Two.

The Tax Plan proposes an increase in the effective tax rate on GILTI income earned by US multinationals from 10.5% to 21% through to 2025 and the elimination of the 10% return on foreign tangible property. Also, GILTI would move to a country-by-country basis. This would prevent taxpayers from offsetting amounts between higher tax jurisdictions to shelter incremental taxes that may be due under the GILTI regime on US multinational subsidiaries in Ireland.

During recent OECD discussions, President Biden’s Treasury Secretary, Janet Yellen, repeated that the US favoured a global minimum rate agreed to by all countries at the OECD level. While it appears that the US will push for a minimum of 21%, there will likely be significant discussion on the minimum rate before anything is finalised.

GILTI and foreign direct investment

The outcome of the final US GILTI and global minimum tax rates will ultimately dictate Ireland’s ability to use tax as a tool to attract new foreign direct investment. The critical role Irish operations play in multinational groups operations cannot be understated and has been further evidenced by the growth in export figures during the COVID-19 pandemic. This is undoubtedly a reason to remain optimistic about the future of foreign direct investment.

However, significant changes to the international tax framework are in Ireland Inc.’s line of sight. Therefore, it is critically important to continue delivering talent, research and development, critical infrastructure, and business supports to ensure that Ireland remains a location of choice for foreign direct investment.

Anthony O’Halloran is Director of Corporate & International Tax at Deloitte.