President Barack OBama last night pledged that the new steps will discourage big firms from pursuing corporate tax-avoidance deals known as “inversions”.
He aims to reduce the economic benefits of tax inversions, which involve US companies ataking advantage of lower tax rates elsewhere, and which have become increasingly common in recent years.
This will heap even more pressure on Ireland, which has effectively used its 12.5pc corporate tax rate to attract hundreds of US companies over the past 20 years.
Foreign direct investment is of huge importance to the Irish economy – and about 150,000 people are employed by multinationals here, many of them leading technology, pharmaceutical or finance firms.
Ireland is already in the global spotlight for the now notorious ‘Double Irish’ scheme, used to route global profits through companies here then on to tax havens.
But the latest move by the US Government is more closely linked to the issue of US firms simply merging with another firm in a country with a lower tax rate – such as Ireland.
In a multi-pronged attack, the Obama administration took action under five separate sections of the US tax code to make so-called inversions harder to accomplish and less profitable.
In an inversion, a US company reincorporates for tax purposes in a country such as Ireland, perhaps maintaining its real headquarters in the US.
Tax experts estimate that there have been roughly 50 tax inversion deals over the past decade, with the majority going to Ireland, the UK, Switzerland and the Netherlands.
President Obama has been ratcheting up the pressure on multinationals and their tax dealings since a speech made in Los Angeles Technical College in late July which pointedly referred to Ireland.
He said: “If you simply acquire a company in Ireland or some other country to take advantage of the low tax rate, you start saying we are now magically an Irish company despite the fact that you may only have 100 employees there and 10,000 in the US; you are just gaming the system.”
A separate blow was dealt last week by the Paris-based Organisation for Economic Co-operation and Development, which unveiled new proposals to eliminate gaps in global rules that allow firms to legally shave billions from their tax bills.
Last night President Obama said the US’s own measures would work to make inversions less attractive.
It will be more difficult for a company to access money made outside the US.
And under current law, US companies that invert through a merger are still treated as domestic for tax purposes if the former US company’s shareholders own more than 80pc of the combined company. The administration wants to reduce that to 50pc.
That will mean some inversion deals “no longer make economic sense”.
President Obama added: “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill.
“I’m glad that Treasury Secretary (Jacob) Lew is exploring additional actions to help reverse this trend.”
The Irish government has insisted that the tax system here is transparent, and that it never negotiated individual tax deals with any company.
Jobs Minister Richard Bruton recently said that our “robust strategy” for attracting foreign companies is “very different to what has recently been discussed around tax inversions”
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