So say Maples & Calders Andrew Quinn and James O’Neal in their initial assessment of President Biden’s plans, announced in broad but not very detailed terms this Spring. The devil will be in the detail then, and, as our Contributors in this issue make clear, there will be much to monitor in the months, and years, to come.
In April 2021, the US published The Made in America Tax Plan (“the Plan”) which proposes to reform the Base Erosion and Anti-Abuse Tax (“BEAT”), Global Intangible low-tax income (“GILTI”) and foreign-derived intangible income (“FDII”) regimes as well as a number of other measures, including a proposed increase in the corporation tax rate to 28% from its current 21% rate”, as Deloitte’s Kate McKenna summarises it.
In addition to the Plan, it was also widely reported that in April the Biden administration submitted proposals to the OECD Inclusive Framework on BEPS 2.0 requesting that a global minimum corporation tax rate under Pillar Two be introduced. It is not publicly known what minimum rate of tax was requested. However, the expectation is that the US would prefer a rate close to the new proposed GILTI rate of 21%.
There will be clawbacks, and these proposals will have to pass through Congress.
How they will work effectively, with regards to the taxation levies on individual US parented corporations in Ireland will depend on how those individual companies respond.
To quote our contributor, Kate McKenna, “With many changes expected both at a US level and internationally, certain groups may have to consider certain restructuring and changes in financing arrangements”.
This, when the fuller implications are considered could mean many things, including even a divestment of US corporations from the US. She may be speaking euphemistically - and, in some cases, this might mean a shift in US economic activity away from the US - the very opposite of the intentions of President Biden’s “Made in America Tax" Plan.
What is clear, though, is that things have become critically important for all US corporations to monitor closely, and tax analysis, the meat and bread of the Irish Tax Monitor has never been more important. Meanwhile, McKenna’s below advice is more than usually important for both US headquartered groups with a presence in Ireland and Irish headquartered groups with a US presence, a number of whom, such as a number of the winners in this year’s Finance Dublin Deals of the year Awards - see elsewhere in this issue, such as Paul Coulson’s Ardagh, whose scale of businesss is evident from the refinancing achieved in 2020.
• Consider the impact of potential US tax reforms on their business
• Model the potential cost and effective tax rate impacts on the various reforms on the basis of information currently available
• Understand the businesses financing needs and ability to repatriate earnings to / from the US as required.
Elsewhere in the Irish Tax Monitor, our panel considers a range of important and developing issues, all indicating the complex and varied range of tax issues modern corporate tax planners must stay on top of. The return to normal working conditions that we can hope for, as this year progresses, will see the need for a readjustment of locations for employees in multinational companies. There has been considerable and welcome flexibility shown on this front by the Irish tax authorities, in a situation not always reciprocated in other jurisdictions.
What is clear nevertheless, as Maples & Calders’s Lynn Cramer, writes ‘It is only a matter of time before we see tax authorities starting to challenge situations that are no longer “temporary” in nature’, and as Deloitte’s Niamh Barry says companies “should also consider the permanent establishment risks associated with having employees working overseas, which has knock on impacts for the transfer pricing analysis, R&D Tax credit claims, and indirect tax obligations.