US tax reform and its impact on Ireland

31 July, 2017

The United States has enacted sweeping tax reforms

These changes represent a major overhaul to the US tax system, the first major reform since 1986. This coincides with dramatic changes in the global business and tax environment.

The stated aim of the overhaul, particularly the business and international tax measures, have been to establish the US system as competitive, helping to 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 foreign direct investment in Ireland and the Irish economy as a whole.

What does US tax reform entail?

Timing of tax reform
The changes
Considerations for Irish business

Timing of tax reform

On 22 December 2017, the Tax Cuts and Jobs Act 2017 was enacted by President Trump. This marks the first major legislative victory of President Trump and the Republican Party since he took office earlier this year. The Act is generally effective from 1 January 2018 for many provisions for many companies.

The changes

The Tax Cuts and Jobs Act of 2017 lowers business and individual tax rates and adds a number of provisions with an intent to modernise US international tax rules. Key provisions include:

A reduction in federal corporate tax rate to 21%
A partial limitation on the deductibility of interest expense
Transition to a territorial tax system with 100% exemption of foreign dividends
Mandatory deemed repatriation of untaxed foreign earnings
An additional tax levied on 'base erosion' payments between related parties
Rules around an additional inclusion of and tax on global intangible low-taxed income (GILTI)

Considerations for Irish business

The proposed changes need to be carefully monitored by Irish FDI and domestic companies
Corporate tax rate reduction may not directly have significant impact on Irish business but should be considered in totality with all provisions
With many changes to the US international tax regime and the manner in which non-US income will be taxed, we expect certain companies may consider certain restructuring, changes in financing arrangements, and/or changes to the existing supply chain.

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 future business plans as a result of US tax reform