The US Jobs Creation Act 2004, which gives American companies with foreign subsidiaries a one year window to repatriate profits to the US where they will be taxed at just 5.25 per cent, will not materially affect investment in Ireland and could have a long term positive rather than a negative impact.
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According to Pat O’Brien, tax partner with KPMG, ‘In the long run the Jobs Creation Act of 2004 is more likely to have a positive impact in Ireland than a negative impact. The boost it has given to Ireland as a shipping and aircraft location may have greater significance than any impact of the repatriation of earnings by US subsidiaries in Ireland.’ The Act has, surprisingly, created an incentive for US companies to locate specific operations, such as aircraft leasing, outside the USA. Up until now, income derived from the use of an aircraft or a ship in what the US termed ‘foreign commerce’ and the performance or sale of services in relation to such aircraft or ships was directly taxable in the USA under Sub-Part F of the Internal Revenue Code when it was generated by a controlled foreign company. Accordingly there was little tax incentive for a US multinational to place such activities in a foreign company.
These activities no longer automatically fall within the Sub-part F; for example,when carried on as part of an active business and, according to O’Brien, already the impact is being felt in Ireland as US companies explore the possibilities of placing their leasing operations in a low tax jurisdiction with good tax agreements. ‘This change, and an associated change in a safe harbour for leasing in the context of Sub-Part F, is particularly significant for aircraft leasing,’ he said. On the issue of profit repatriation, while there is still considerable uncertainty surrounding the fine print of the legislation, David Hanna, head of financial services with the IDA, expects many companies to avail of the opportunity presented by the Jobs Creation Act. ‘We expect companies to avail of the opportunity. But to what extent, we don’t know. However, one thing we are sure of is that we don’t expect it to materially affect the prosperity of their Irish operations,’ he told FINANCE.
Christine Kelly, tax advisor with the IDA’s Strategic Business Group (SBG), has also noted that companies themselves are only beginning to look at the legislation and what they would be required to do to avail of the tax break. ‘There are something like 690 pages of legislation and there are still regulations coming out so it’s something that is quite complex but the gut reaction seems to be overall we don’t think it’s going to negatively affect companies that were planning investment in Ireland during the same period,’ she said. |
