Press release

Trump to cut US corporation tax to 20pc

Peter Vale Peter Vale

In our view,  President Trump still has a battle on his hands to get any kind of fundamental tax reform through, particularly following his failure to repeal Obamacare. He'll face issues from those not happy with his plans on how to fund the proposed significant tax cuts and from those who think his proposals favour the wealthy. And he'll face that on both sides.

From Ireland's perspective, the proposed cut in the US corporation tax rate to 20% jumps out. It's worth noting that originally 15% was the target new rate. We would still be of the view that ultimately any corporate tax rate cut is likely to land in the 25% to 30% bracket. When you factor in state taxes, a large differential will very likely remain between the effective US and Irish corporate tax rates.

Unquestionably, a lower US corporation tax rate will make it more attractive to do business in the US. However, the majority of US companies are in Europe for commercial reasons, not for tax. In choosing which European country to base their operations, tax is then undoubtedly a factor. As Ireland continues to have the lowest corporate tax rate, we would see the risk of a significant outflow of US investment from Ireland as low. Similarly we would not expect to see a significant reduction in new US FDI here. So while a tax rate cut in the US makes the US more attractive, we would see the risk of a significant adverse impact on Ireland as low.

An often quoted statistic is that Irish companies employ more people in the US than US groups do in Ireland. For those Irish companies with operations in the US, any corporate tax cut will be welcome, freeing up more cash to invest in their business.

In summary, President Trump is likely to face some hard battles ahead before significant tax reform in the US becomes a reality. One of his issues is that while tax cuts can often stimulate activity and pay for themselves, the payback period is typically in the medium to long term, not immediate.