INTERNATIONAL TAX: Global tax deal in doubt due to US exclusion of offshore profits.

As published on independent.ie, Saturday 13 August, 2022.

A global corporate tax deal is still out of reach, despite the US approving a 15pc tax on its own firms’ profits.

The tax forms part of President Joe Biden’s landmark $430bn Inflation Reduction Act, which was due to be approved by the US House of Representatives on Friday.

But according to US Senator Joe Manchin, the deal does not include firms’ “offshore” profits, which means it is not in line with the 15pc tax agreed last year by 137 countries, including the US and Ireland.

“Our international corporations, we didn't do anything that would cause them to be uncompetitive in the global market,” Mr Manchin said.

The US tax applies to the “book income” - or pre-tax income – of corporations making profits of over $1bn a year.

But it exempts accelerated depreciation, tax credits and certain other items, according to the US Tax Foundation think tank.

Manal Corwin, Washington National Tax practice chief for consultants KPMG, told Reuters the inflation act’s adoption “does not bring the US rules into alignment with the global minimum tax architecture" agreed last year.

That deal was brokered by the Organisation for Economic Cooperation and Development (OECD), and does not exempt tax credits, although the technical details are still being worked out.

The Irish Government is consulting on how the 25pc research and development tax credit and patent box can remain compliant with the OECD rules.

Meanwhile, the EU is still struggling to pass its own version of the 15pc tax after a recent bid by Hungary to veto it, on the grounds that it could damage European companies hit by the Ukraine war.

While the 15pc tax could net Ireland more multinational revenue, the Department of Finance says that a parallel deal shifting taxing rights to other countries could cost €2bn a year.

However, the Department said in a strategy paper this week that “it remains very difficult to accurately estimate the impact at this stage” as the details are also being worked on by the OECD.

“The outcome of these discussions, coupled with the future business decisions of multinationals, will have significant implications for our future corporation tax receipts, and the scale of the effect will only become fully known with time,” the strategy paper said.

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