The Obama Administration has proposed a minimum
tax on profits of US companies in foreign jurisdictions that if implemented will
reduce the attraction of Ireland's low-tax foreign direct investment regime and
imperil the tax haven activities of high profile companies such as Microsoft,
Google and Facebook.
President Obama on Wednesday proposed the first major reform of the US
corporate tax system in a quarter century and outlined a plan to cut the
headline corporate tax rate to 28% from the current level of 35% while
eliminating several loopholes that cut tax bills.
The Administration said: "Our
tax system should not give companies an incentive to locate production overseas
or engage in accounting games to shift profits abroad, eroding the US tax base."
It takes aim at Ireland's low-tax system by proposing a minimum tax on foreign
earnings that would "discourage a global race to the bottom in tax rates."
It would also target the tax haven activities of
US companies, which we outlined last week - -
Finfacts Premium provides access to comprehensive research on tax havens and tax
systems in the OECD (Organisation for Economic Cooperation and Development)
developed world economies.
The Administration proposes that income earned by subsidiaries of US
corporations operating abroad must be subject to a minimum rate of tax. It says
this would "stop our tax system from generously rewarding companies for moving
profits offshore. Thus, foreign income deferred in a low-tax jurisdiction would
be subject to immediate US taxation up to the minimum tax rate with a foreign
tax credit allowed for income taxes on that income paid to the host country.
This minimum tax would be designed to balance the need to stop rewarding tax
havens and to prevent a race to the bottom with the goal of keeping US
companies on a level playing field with competitors when engaged in activities
which, by necessity, must occur in a foreign country."
No specific tax threshold has been proposed.
Bipartisan US tax reform is not welcome news in
Ireland which is also facing pressure from Europe on preventing companies like
Facebook, which books sales revenues generated in places like Germany in Ireland
and pays tax on such sales to the Irish Government.
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