AS WE LOOK forward to the US presidential election on Tuesday, let’s examine the age-old question that’s haunted democracy: what’s in it for me?
Soon after Donald Trump became president, his adviser Stephen Moore was warning that there would be “a flood of companies leaving Ireland… to come back to the US” after its corporate tax rate was lowered to compete with Ireland’s infamously low rate of 12.5%.
In August 2017, Moore said that construction and manufacturing jobs needed to be brought back to the US, saying: “…You can’t do it in Ireland and all of these other places. You have to bring this work back to this country so that American workers can benefit”.
As far back as March 2016, and as recently as May of this year, Trump was threatening to pull pharmaceutical companies back to the US as well.
Although the US did lower its corporate tax rate from 35% to 21% in 2017, Ireland has not seen a mass exodus of companies to the US – but if Trump, and to a lesser extent, the Republican party, gained another four years to pursue these policies, would it happen then?
And what about Democratic nominee Joe Biden: would he clamp down on the multinationals that boost Ireland’s economy?
A post-Brexit deal
Whether we get a Free Trade Agreement between the EU and UK before the end of the year could be an unintended consequence of the US presidential election result.
If Biden wins, UK Prime Minister Boris Johnson has lost a powerful friend - Biden, House Speaker Nancy Pelosi, and the Democrats have been strong on upholding the Good Friday Agreement before any talk of a UK-US free trade deal begins.
If Trump is reelected, however, it could mean Boris Johnson will play hard-ball with the EU, and abandon trade talks in favour of a closer deal with the US.
Ivan Rogers, a former British ambassador to the EU, told The Observer this week that “several very senior sources” in European capitals told him that they believe Johnson will wait for the US presidential election result before opting for no post-Brexit trade deal.
“There is a lot of frantic repositioning going on at the moment here in London by this administration in Britain,” former Conservative finance minister George Osborne told CNN on Sunday.
“But I don’t think Joe Biden will feel particularly warmly toward this British government, and they’re going to have to work very hard to change that,” he said.
Under Trump’s presidency, work has already begun on a post-Brexit US-UK trade deal, while Biden has previously showed disdain for Johnson – describing him as a “physical and emotional clone” of Trump.
Corporate tax rates
Frank Barry, Professor of International Business & Economic Development at TCD, says that there is “unlikely to be a huge difference really between the two” presidencies – though regulation on the tech giants will come from both men either way.
“According to leaked corporate tax proposals last year, Biden was talking about tinkering at the margins of the new regime that Trump instituted in 2017.
But the amazing thing about the Trump regime is it went against what the Republicans have been arguing for for decades. It took on board many aspects of Democratic Party proposals – that is to try and reconfigure the US corporate tax system to reduce the incentives for [US companies] to invest abroad.
“That was the policy platform that Obama ran on on his first presidential campaign. ”
Even more significant, Prof Barry says, was that US multinationals that went overseas would no longer earn residual tax liabilities to the US exchequer on the profits that they earned abroad. Intricate clauses were introduced to reduce the incentives to do that.
“It’s really spectacular the complex type of package that Trump introduced and Biden is talking about tinkering with the margins of that.
I think if the Democrats come back into power, they’ll raise the corporation tax rates somewhat because Trump’s was an absolute giveaway to corporations.
Pharma companies
Earlier this year, Trump took part in a two-hour long ‘town hall’ meeting as part of the launch of his presidential campaign. During this, Trump was asked about bringing drug manufacturers back to the US during a discussion about a Covid-19 vaccine.
As part of his response, he said: “It’s not only China. You take a look at Ireland, they make our drugs. Everybody makes our drugs except us.”
He added: “We’re bringing that whole supply chain back. Nobody has to tell me to do it, I’ve been talking about that for years.”
Ireland’s pharmaceutical industry has been growing steadily: between 2012 and 2018, pharma goods have become Ireland’s largest export to the US. This has only become more apparent during the pandemic and subsequent downturn, when pharma exports from Ireland surged – bolstering a previously gloomy economic forecast for this year.
Now, Trump is saying he’s going to lure these Irish-based US pharma companies back.
“So Trump inserts into his speeches his off-the-cuff remarks every so often about bringing the pharma companies back from Ireland to America,” Barry says.
Well again, his chance to do that was in the the Tax Cuts and Jobs Act 2017, the big corporation tax bill.
And the intricate complex sub-clauses in that Bill were all designed not to force companies to do that.
“There’s a major clause in the bill called the ‘GILTI’ clause – Global Intangible Low Tax Income – and it’s almost like a global minimum tax, the specific numbers that were used in the GILTI clause allow Ireland to escape just under the under the radar, you might say, to allow our tax regime not to be caught in that trap.”
Regulating tech companies
On the possibility that tech firms may be regulated with a heavier hand in the next US presidential term, Barry says this is another “real conundrum” for the Democrats, who are more “populist” in the sense that they defend the individual against big corporations.
But the bind they find themselves in is that Silicon Valley is, almost to a person, Democrat.
In the same way as Trump and the Republicans have found themselves in some ways beholden to pharmaceutical companies, which tends to be pro-Republican, the tech companies are all pro-Democrat.
He adds that whatever party takes power, there will be pressure on it to rein in the tech companies with some sort of anti-trust regulation, but it will be particularly difficult for the Democrats.
On a global front, Biden may be a better ally for the tech companies.
Barry says that the battle between the OECD is between Europe and America over taxing the tech companies based on European proposals, which the US side views as anti-American and protectionist, since all the major tech companies are US companies.
I think a Biden presidency would be strong in defending American interests against a digital tax which has been pushed by the big European countries.
Leaked Biden proposals
Barry says that there was another tax proposal that was of interest, and may prove devastating to Ireland and its relationships with multinationals.
“Part of the Biden proposals that was leaked was to essentially to impose a minimum tax on American multinational companies abroad – that’s what the GILTI clause does.
“But that minimum tax applies to all their taxes that they pay overseas.
So Apple for example if it’s operating in Germany and pays particular taxes, operating here, it pays taxes if it’s in Bermuda or wherever it pays taxes, all of those taxes are aggregated. And if they don’t add up to the minimum tax in this GILTI clause then they owe a specific amount of money to the US Revenue.
Now, the Biden proposal says, rather than calculating the minimum tax liable on these companies overseas, they have to be calculated as a minimum tax per location. So, that would really damage us.
“So, for example, if a multinational is in Ireland, it has to pay let’s say 14%. And that would mean our 12.5% means nothing. It’s now jacked up to a minimum of 14%.
“The way it is at the moment is multinationals can essentially ‘mix’ the tax they pay in a high tax jurisdiction with the taxes they pay in a low tax jurisdiction like Ireland, and that’s what they have to balance against the US minimum tax clause.
“That’s one of the big battles in the legal battle with the OECD: whether a minimum tax should be levied per jurisdiction – which will be very damaging to us – or per company, which would seem to make more sense, and [under] which we can function fine.”
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