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 November 2017. It is expected to mirror to a certain extent the “Unified Framework for Fixing our Broken Tax Code” (the Framework) which was released by the Trump Administration and Congress on 27 September 2017.  

Before a tax reform bill can be voted on, Congress must first pass an FY 2018 budget resolution that is expected to 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. The budget resolution also is expected to include details as to how much of the tax cuts can be deficit financed over the budget period.

Use of simple majority reconciliation procedure to introduce tax reform has a short window as while the Republican party currently has a simple majority in the House and Senate, that position could change after the mid-term elections in November 2018.

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The proposed changes

The Framework, released in September 2017, contains similar proposals as compared to the prior one-page proposal which 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 the Framework 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.  

The elements included within the Framework, which has support from members of both the Trump Administration and Congress, include:

  • A reduction in federal corporate tax rate to 20%
  • 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

Other rules may be included to avail of the 100% exemption of foreign dividends including potential changes to the existing US CFC/anti-deferral regime (“Subpart F”), the introduction of a “minimum tax”, or other measures which are unknown at this time.

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 for a period of time, 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
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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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