US tax reform and its impact on Ireland

Tax reform is high on the agenda in the United States

What might the changes mean for Ireland and Irish business?

There have been multiple attempts to overhaul the US tax system since the last major reform in 1986. In the intervening period, there have been dramatic changes in the global business and tax environment.

The current US tax system can be viewed as uncompetitive when compared with other major countries. It is widely acknowledged that a new tax system is needed to help create jobs and drive economic growth in the US.

Ireland is a small, open economy and one of our most important relationships has been, and continues to be, with the US. Any fundamental changes to the US tax system could have implications for US FDI investment in Ireland and the Irish economy as a whole.

US tax reform and its impact on Ireland — PwC Ireland


Where does US tax reform currently stand?

Timing of tax reform

The next major tax reform bill is expected to be presented in September 2017. It is likely to mirror the tax plans tabled by this administration and members of Congress.

Members of Congress continue to have differing views on the timing of tax reform.  However, many in Congress remain committed to tax reform in 2017 such as House Speaker, Paul Ryan, who committed in a recent speech to making tax reform happen in 2017.

The discussions around the FY18 budget continue and many expect that when budget resolution occurs, it will include reconciliation procedures as it relates to tax reform.  With reconciliation procedures, tax reform can be passed with the Republican’s simple majority in the House and Senate.

While the Republican party has a simple majority, their dominant position could be lost after the mid-term elections in November 2018.

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The proposed changes

A number of US tax reform plans have been proposed in the last few years. The most recent proposal was released by the Trump Administration in April 2017. Prior to this, in June 2016, the House Republicans released their Tax Reform Blueprint.

Many of the principles in these plans are similar to those that appear in the 979-page HR 1, the Tax Reform bill drafted in 2014 by Dave Camp when he was the Chairman of the House Ways & Means Committee.  While it is uncertain which particular elements of these plans will be included in the next tax reform bill, there are some common proposals including:

  • A reduction in corporate tax rate (rates varying from between 15% - 25%)
  • Transition to a territorial tax system
  • Mandatory deemed repatriation of untaxed foreign earnings (with varying rates)
  • Limitation on deductibility of interest

Also as announced on 27 July 2017, the border adjustment tax which was only included in the Tax Reform Blueprint and was a topic of debate in Congress is no longer being considered by Congress in future tax reform discussions and proposals. 

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Considerations for Irish business

  • The proposed changes need to be carefully monitored by Irish FDI and domestic companies.
  • Corporate tax rate reduction may not have significant impact on Irish business but it should be factored into decision making and strategic analysis.
  • Mandatory deemed repatriation could lead to short-term activity and repatriation to the US.

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What should Irish businesses do now?

  • Consider the impact of potential US tax reform on existing projects, investments, supply chain and planned reorganisations
  • Model the potential cost and effective tax rate impacts of the various tax reform proposals
  • Understand business cash needs and ability to repatriate earnings to the US while considering the potential upcoming mandatory deemed repatriation
  • Monitor further developments and any draft legislation that emerges
  • Contact PwC Ireland to discuss your organisation's position and planning ahead of US tax reform

 

Latest US tax reform insights

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Liam Diamond
Partner
Tel: +353 1 792 6579
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Harry Harrison
Partner
Tel: +353 1 792 6646
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Susan Roche
Director
Tel: +353 1 792 6290
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Anthony Falkowski
Senior Manager
Tel: +353 1 792 8784
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