Thanks for the update

CS:

Comments well taken

(I once enjoyed an overseas federal income tax “haven”—a very legal one, I hasten to add.)

Dorian

Dorian, you're right that there are tax advantages of operating in certain states, but none of that helps reduce the exorbitant federal tax rate. It makes no sense to go after the loophole seekers instead of doing what's been proven to work- reduce the rate. Whether it's individuals or corporations, when the rates are high there's a great tendency to shelter income but when the rates are reasonable, the taxes just get paid.

For example, how many states, counties, municipalities,etc., offer all kinds of tax advantages (“incentives”) to corporations in order to seduce them to settle in their state, county, community, etc.?

Dorian

There was a cautious reaction here to Mr Obama’s proposals. A spokesman for the Department of Finance said: “We will be studying the proposals in detail to consider their impact on Ireland.”

A source close to the department said its initial view was that Mr Obama’s proposed measures will target offshore tax havens rather than countries like Ireland that offer low corporate tax rates but have transparent tax treaties with the US.

IDA chief executive Barry O’Leary said this morning the agency had expected the measures to be more severe and was not overly concerned that the proposals would deter US firms from investing here. He pointed out that the plan was “well signalled” in advance by Mr Obama and yet US companies such as Hewlett Packard, Intel and Paypal have continued to invest heavily in Ireland.

The Irish Government has lobbied the Obama administration energetically in recent weeks in an effort to avert changes in the rules governing tax deferral.

In addition, Mr O’Leary said the agency has been working closely with US tax advisers for the past three years and a senior IDA executive has been sequestered to the Irish embassy in Washington DC to work with diplomatic staff on the “influencing agenda”. He said Ireland has to emphasise that it is still a good, profitable place to do business, rather than simply a place to secure low tax rates.

Mr O’Leary explained that Bermuda is typically regarded as a tax haven, while the Netherlands is regarded as a holding company location that doesn’t have a great deal of substance. “Ireland is part of the equation that brings huge substance with multinational investment so I think Ireland is quite different from the other two locations,” he said.

“It’s also important to bear in mind that Ireland’s success has predominantly been in the high-tech, IT industry and the live sciences and they are very profitable businesses globally in any case so you would expect that the profits would be much higher than most businesses.”

While there would be some uncertainty over the next year to 18 months, Mr O’Leary was confident Ireland will not be too severely affected. “It does appear from initial reading that we’ll fare pretty well out of this whole process,” Mr O’Leary said.

Feargal O’Rourke, an international tax partner with PricewaterhouseCoopers in Dublin, said: “The good news is that their primary focus is on tax havens, which we are not. There is no abolition of deferral. That’s the really good news.”

Yesterday’s proposals are less severe than the worst-case scenario for Ireland – a complete repeal of the right to defer paying US taxes on overseas earnings – and the new rules on expense deductions include an exception for research spending.

The proposals would, however, reduce the tax advantage for US corporations investing in Ireland and the US Chamber of Commerce yesterday condemned them as an unacceptable burden on American firms.

Unlike other countries, the US demands that its citizens and corporations pay US tax on all their worldwide earnings. Corporations can, however, defer paying US tax on foreign earnings until those profits are repatriated. The top US corporate tax rate is 35 per cent, compared to Ireland’s 12.5 per cent, giving US multinationals a lucrative incentive to invest in Ireland.

Barack Obama insults Western allies as “tax havens”
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