Newspaper article The Christian Science Monitor

Obama's Offshore Tax Reforms Prompt Jitters in Ireland

Newspaper article The Christian Science Monitor

Obama's Offshore Tax Reforms Prompt Jitters in Ireland

Article excerpt

President Obama launched his offshore tax reform proposals last month with a briefing note stating that Ireland, Bermuda, and the Netherlands accounted for nearly a third of all foreign profits reported by US corporations in 2003.

These are precisely the profits Mr. Obama hopes to tax.

The three countries named in the memo did a shocked double-take: "Who, me?"

It was not an entirely ingenuous reaction. The president's intent to rein in offshore tax havens and close corporate tax loopholes was signaled long in advance.

Although the issue has remained relatively under the radar in the US, it's caused something of a furor in Ireland, where unemployment is skyrocketing, the budget deficit is deepening, and the banking sector threatens to disappear down a black hole left by the imploding property market.

More than 500 US firms employ 100,000 people directly in Ireland. In 2008, those firms paid more than $3.6 billion in corporation tax to the Irish government - 40 percent of the country's total corporation tax take that year. If the new rules were to prompt a mass exodus of US multinationals, as some analysts predict, the economy would effectively be almost entirely hollowed out.

The Irish press has reacted to the proposal with dismay, but more sober minds have since combed the president's statement and exhaled an uncertain sigh of relief. For Ireland, and for every other country with a substantial US corporate presence, deferral is the big issue. Existing law allows multinational corporations to defer reporting their foreign income to the Internal Revenue Service and to obtain US tax credits for paying foreign taxes.

The president stopped short of repealing the tax deferral law, but he proposes to prohibit businesses from receiving tax deductions for overseas investments until taxes are paid to the IRS on the profits gained abroad.

Beyond the brass plate

It's a situation that makes countries like Ireland, with a corporation tax rate of 12.5 percent, considerably more attractive as an export base than the US, with its 35 percent rate.

Pat Wall, a tax expert with the American Chamber of Commerce in Ireland and a partner with PricewaterhouseCoopers in Dublin, says existing tax rules are hideously complex. The president's proposal to reform deferrals would take in an estimated $60 billion over a 10- year period.

"To be honest with you, that's not a hill of beans," Mr. Wall says. "Don't get me wrong, anything that tilts the playing pitch against foreign investment has to be bad news for us, but I suppose to some extent we are lining this up against the worst-case scenarios that people were painting in the run-up to all of this."

Those worst-case scenarios included a complete end to the deferral system.

"That would have been Armageddon," Wall says. "What [Obama] is proposing is nuanced, and to be honest, you couldn't really argue with it. …

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