| Bush’s more benign tax policy |
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| At the time of the US presidential election in November 2004, concerns were expressed that the Democratic candidate, John Kerry, and his running mate John Edwards, might initiate changes in the US tax system that would prove unfavorable to Ireland. |
The Kerry/Edwards ‘pro-jobs’ tax reform plan, which would have seen the most sweeping international corporate tax reform in over four decades in the US, was aimed at encouraging companies to create jobs in America and to stop shifting jobs overseas for tax reasons.
The plan involved ending tax breaks that encourage companies to move jobs overseas by eliminating the ability of companies to defer paying U.S. taxes on foreign income, closing ‘abusive’ international tax loopholes, and cutting the corporate tax rate by five per cent.
Ireland was highlighted as a location which had attracted such investment, and in a report published by Kerry, Martin Sullivan, a US tax analyst, said, ‘The U.S. tax system is set up, unfortunately, in a manner that it is far more profitable to set up an operation in Ireland or in Singapore than it is in Des Moines, Iowa.’
The policy is out of the anti tax competition drawer that sees its European counterpart in the corporate tax harmonisation agenda that would see the EU imposing a standard Union-wide corporation tax rate.
The US electorate’s choice of Bush has been fortuitous for Ireland’s continued economic wellbeing, because his agenda is more benign from a freedom of world trade and investment flows perspective. Ireland, as a very open economy, is critically dependent on a positive investment flows environment. (Bush nevertheless is not beyond reproach as a liberal on trade matters however, as his first term record shows - most notably in regard to his imposition of tariffs on EU steel). None of these points seemed ironically to weigh too much with the Irish electorate however, to judge by polls published during the presidential election, showing a strong bias towards Kerry. It even also seemed that the more we seemed dependent on US trade and economic relations the more we resented Bush (as the reception accorded Bush in Shannon indicated - a town which owes its very existence to the Ireland-US nexus).
Bush’s tax plan, the US Jobs Creation Act 2004, as our story on Page 1 says, has a further unintended by product that can impact positively on the Irish financial services industry.
While it is expected that some companies may repatriate earnings, the opportunities opening up for the shipping and aviation finance industries under the Act, should outweigh any negatives.
Ireland has been a niche centre for aviation financing for some time now, attracting some of the biggest names in the business including GECAS, Debis Airfinance and RBS Aviation Capital, and a number of years ago a shipping body, the Irish Maritime Development Office, was set up to try and attract a similar level of business in this sector.
The moves in the US may mean, as outlined by Pat O’Brien of KPMG on page 1, that additional aviation and shipping leasing companies will set up operations in Ireland, now that these activities no longer automatically fall within the Sub-part F.
So maybe the US electorate got it right after all? |
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| Article appeared in the January 2005 issue.
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