The Organisation for Economic Co-operation and Development (OECD) has a long running process to address the tactics used by multinationals to cut their tax bills, achieved by moving profits around the world to low-tax or no-tax jurisdictions. (This is called the base erosion and profit shifting or Beps process).
In October 2021 around 140 countries involved in this process agreed to a deal involving key reforms of the way big companies are taxed. Ireland had hoped that signing up to this deal would remove controversy around Ireland’s corporate tax system – fuelled by the Apple controversy – and give certainty to big companies investing here.
But now that Trump has pulled out of this deal there is new uncertainty, and he is indicating that he wants to rewrite parts of the international tax rule book.
As we rely on the US for the vast bulk of our foreign direct investment this is a big issue for Ireland.
Where could trouble hit?
There could be serious tensions between the US and European Union (EU) on tax as a result of this, with Ireland caught in the middle.
With the US out of the OECD deal, there are a number of potential flashpoints.
One is a rule in the OECD deal – now in EU and Irish legislation – which would oblige Ireland to collect top-up tax from US companies in some cases, in addition to what they would normally pay here.
[ Ireland on alert as Trump pulls US out of global tax dealOpens in new window ]
This is called the undertaxed profits rule (UTPR) and is one of a series of measures in the OECD deal to try to ensure that big multinationals pay the minimum 15 per cent. It would not have been a problem if the US was part of the agreement – but now it could be.
This had already been targeted by Republicans in the US as discriminatory to US companies. In these kinds of cases, Trump is threatening to implement a little known part of the US tax code which would allow him to double the tax paid in the US by companies and individuals from the countries involved.
Is Ireland’s planning system broken?
Another area of potential tension is the way big digital service firms like Meta and LinkedIn are taxed.
The OECD deal had suggested a way forward here – involving these companies paying a bit more tax in the markets where they do business and a bit less in countries like Ireland where they have their international headquarters.
But this was already in doubt before Trump took over and this part of the OECD deal now looks completely dead.
If EU countries decide to move ahead unilaterally to impose new taxes on these firms, this would also spell trouble and likely retaliatory threats from the US.
What is the extent of the danger for Ireland?
As ever with Trump, we wait to see what he will actually do. As the international home for many big US firms, Ireland would clearly be right in the middle of any tensions on corporate tax and could be caught up in Trump reprisals if the UTPR row is not defused, including targeting Irish interests in the US.
On a broader level it remains to be seen if the study which Trump has ordered by US agencies of the tax practices of other countries focuses on issues damaging to Ireland.
[ Trump’s negotiating tactics: escalate or shoot the dogsOpens in new window ]
In particular, the way US multinationals organise their tax structures – built on their use of intellectual property (IP) arrangements – is central to their tax planning and has been controversial in the US.
Senior figures in the Trump administration have referred to Ireland’s role in this, particularly in the pharma sector where many of the products end up being exported back to the US market.
There are a variety of levers which the Trump administration could pull to try to get these companies to relocate some parts of their manufacturing operations, or their IP back to the US, for example tax breaks for making products in the American market, or technical changes about how foreign income is dealt with.
Relocating either their real assets or their IP to the US is not straightforward and the big companies would want to retain an operation in the EU, particular if there are tariff threats. So we will have to wait and see on this one.
What about tariffs?
Trump held off from specific executive orders implementing tariffs on day one. But he indicated that they are on the way.
He has threated an early move on higher tariffs on China – a 10 per cent rise from February 1st – based on a demand it reduces the flow of fentanyl to the US. And he is also threatening 25 per cent tariffs on Canada and Mexico.
In terms of the EU, he has said since his election that tariffs are on the way, because of the big trade deficit in goods it has with the US.
However he also said the US is not ready to move ahead with blanket tariffs – ones that apply on a wide range of imports.
There are reports of divisions in the administration on this – and this is another vital area for Ireland to watch as the US is a key trade partner.
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Publish date : 2025-01-22 04:32:00
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