OPINION:
America is once more open for business. With the Trump administration’s emphasis on tax reduction, elimination of overbearing and unnecessary regulations, job creation has put a fire under the economy. The result is a steady increase in the U.S. gross domestic product.
There’s no mystery about it. Policy affects progress, either by accelerating it or by putting limits on it. The latter was the story of the Obama years, when federal spending failed to stimulate the economy, as promised, and a prolonged and extensive regulatory binge chased American companies and jobs overseas.
This was a boon to international tax havens like Ireland, which boosted their economies and made themselves attractive to international investment by cutting corporate taxes. Thanks to the stunning 14 percent reduction in the U.S. corporate tax rate, those unhappy days are over. The United States is competitive on a global scale again, companies that abandoned America are coming home, bringing jobs and tax revenue with them.
This is unsettling news for countries like Ireland. Once a prime destination for companies fleeing the 35 percent corporate rate in America — at the time the highest in the world — the new environment in America means those other nations must be careful to do nothing to encourage companies to go home. It was the favorable corporate tax provisions and an ultra-low 12.5 percent base corporate tax rate that attracted American investment in the first place. The American Chamber of Commerce in Ireland pegs U.S. direct foreign investment in Ireland at $387 billion; 25 of the 50 top Irish enterprises are U.S.-based companies.
These companies employ a quarter of Ireland’s private sector workforce, and pay average wages nearly two-and-a-half times the nation’s domestic industrial wage. In 2016, the office of Irish Revenue estimated that U.S.-based multi-nationals paid 80 percent of corporation and business taxes. That’s a big footprint.
Ireland was particularly successful in attracting U.S. investment in pharmaceuticals, airplane leasing, technology and intellectual property. More than half of the world’s leased aircraft are owned and managed in Ireland, as are 19 of the world’s top 20 pharmaceutical and biopharmaceutical companies. You might think the government would leave such a golden goose alone. But ever-greedy government revenuers put the head of the goose on the chopping block, leaving an opening for the Trump administration to coax American investment and jobs to come home.
The major attraction for foreign investors was tax certainty, but Irish Revenue, reversing years of practice and precedents, with little notice and almost no warning, assessed the pharmaceutical firm Perrigo nearly $2 billion in tax and penalties. Perrigo has appealed. Many analysts expect Perrigo to win outright or settle for pennies on the dollar, but many business leaders suspect Perrigo is a test case and other U.S.-backed multi-nationals are at risk. In another case, Irish Revenue assessed chip maker Analog Devices $50 million in penalties with neither notice nor rationale to back up the agency’s claim.
The uncertainty and confusion created by this sudden change of course, together with the changes in U.S. policy, creates opportunity for the United States. The reduction in the U.S. corporate tax rate, the introduction of favorable expensing of capital investments and the elimination of the corporate alternative minimum tax are attractive lures to bring the Americans home.
More important to America’s ability to capitalize on Ireland’s mistake is the establishment of special 15.5 percent tax rates for repatriation of certain foreign profits — 8 percent if repatriated earnings are reinvested. According to the U.S. Bureau of Economic Analysis, more than $305 billion has already been returned to the U.S. from overseas accounts.
Taking advantage of this confluence of happy circumstances is a no-brainer for the Trump administration. The tax havens once capitalized on America’s onerous tax and regulatory burdens, and now it’s a happy time for the White House and senior government officials to drive home the message that the welcome mat is out. Prodigals come home.
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