Ireland to become more competitive and flexible after US border tax reveal

US President Donald Trump unveiled a border tax plan last week which may affect Irish exports into America.

Initially, there were concerns that the border tax would hurt Irish exports into the US, making it preferable for US companies to shift their operations back home. However, the consensus is that it’s now unlikely he'll include a border-adjusted tax that House Speaker, Paul Ryan proposed, according to senior administration officials.

Senior Republicans, including Ryan, are strongly opposed to any move that would not be matched by alternative funding and Mr Trump is likely to face resistance in Congress, where Republicans are wary of any measure that might increase the deficit.

Trump previously stated he will introduce a penalty tax on big US corporations that have moved manufacturing plants out of America. The tax could be as high as 35% on products shipped back to the US market. In September 2016, he announced a tax reform plan that could see corporation tax in the US drop from 35% to 15%. Ireland’s current tax rate for corporations is 12.5%, so the move could significantly weaken the IDA’s hand when trying to tempt US firms to move to Irish shores in the future.

During his presidential campaign, Trump said he was going to encourage car manufacturers to shift manufacturing facilities back to the US and highlighted the pharmaceutical industry as his next big focus. Several multinational drug and medical equipment developers have moved to Ireland and used a technique called corporate ‘inversion’ to benefit from lower tax rates on their profits. Many US pharmaceutical companies also have significant manufacturing centres in the Republic. According to the IDA, roughly 50,000 people in Ireland are employed by pharma firms.

Speaking ahead of an international tax event in Dublin, Joan O’Connor, head of international tax at Deloitte Ireland, stated there could be a potential dampening of investment in Ireland, as the manufacturing sector is dominated by US pharma and medtech firms.

Economist Stephen Moore said that, after Mr Trump’s election, a “flood of companies” would potentially leave Ireland, and other countries, under the new US regime’s tax plan.

However, under questioning from Sinn Féin’s Pearse Doherty about potential US corporation tax changes, Mr Moran said there were different views about what might happen and protectionist measures were in place for any grave impact from the UK's future relationship with the EU or the US.

Department officials explained there was a “rainy day fund”, agreed last year; plans to reduce the national debt; and ambitions to make Ireland more competitive or flexible, in the event of sudden changes.

Date published 3 May 2017 | Last updated 3 May 2017