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In March, President Donald Trump both critiqued and praised Ireland’s ability to attract the entire US pharmaceutical industry, citing its corporate-friendly tax policies as a key factor. Trump highlighted the issue of US companies such as Merck & Co., Amgen Inc., and AbbVie Inc. booking their profits in Ireland rather than the US, thus contributing to the massive trade deficit.
However, the challenge of US corporations relocating profits isn’t solely due to Ireland’s low tax rates, but rather stems from America’s “America Last” tax policies. The responsibility lies with Congress to reassess and amend US tax policies during its debate on national tax reform. This approach should be considered as the root cause and potential solution for this challenge.
For many years, US corporations have been drawn to Ireland, initially attracted by access to the European market and now due to its appealing 12.5% corporate tax rate. The European Union, however, took note of the low tax payments reported by companies like Apple Inc.’s Irish subsidiary. The EU ordered Apple to pay back taxes, although Ireland has since adjusted the tax loopholes involved. The US’s 2017 tax reforms attempted to address these issues by eliminating indefinite deferrals of US taxes on foreign income. However, this hasn’t significantly reduced the pattern of US firms offshoring profits.
Current estimations show that major US pharmaceutical companies pay about 15% of their global profits in foreign taxes, according to economist Brad Setser. In stark contrast, the US itself has not adopted the globally accepted minimum corporate tax rate of 15%, putting pressure on reform. The US’s Global Intangible Low-Taxed Income (GILTI) rate, set by the 2017 Tax Cuts and Jobs Act, remains a mere 10.5%, which companies exploit by moving profits to low-tax jurisdictions like Puerto Rico.
There is now an opportunity for the US Congress to rectify these tax policies as discussions commence about the expiration of certain 2017 tax cuts. Revisiting these tax issues provides options that could generate hundreds of billions of dollars in additional revenue over ten years. As suggested by the University of Pennsylvania’s Wharton School, revising the GILTI rate to over 15% could help finance other policy priorities and alleviate national debt.
Taking decisive steps to amend US tax policies aligns with Trump’s call for fairness in US-Irish trade relations. However, rather than imposing punitive tariffs on Ireland, the strategic move is to focus on reforming domestic tax policies. The onus is on Congress to address the “America Last” tax situation, ensuring a more balanced regulatory environment that keeps corporate profits closer to home.
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