10,000 Jobs at Risk in US based companies in the Mid-West – Breen

May 15th, 2009 - Pat Breen

10,000 jobs could be at risk in US Based Companies in the Mid-West Region warned Deputy Pat Breen if President Obama’s plans to overhaul the US tax code go ahead.

I congratulate Deputy Calleary on his recent appointment as a Minister of State and wish him well in his new role. I thank the Ceann Comhairle for facilitating this matter on the Adjournment.

Exchequer returns for the first four months of 2009 were published yesterday afternoon and do not make for pretty reading. The deficit for the four months of this year is €7.3 billion. Taxes are down 24% with a 6% fall in income tax receipts and VAT receipts down more than €1 billion. Up to 384,448 people are registered unemployed, making an average of 5,800 people joining the dole queues every week. If unemployment continues to grow at this rate, up to 570,000 people could be without a job by the end of the year.

The US President’s, Mr. Barrack Obama, plans to overhaul the US tax code has sent a shiver up the spine of many US companies based in Ireland and has put many economic commentators on red alert. Over 570 US firms are based in Ireland, accounting for 70% of all IDA Ireland supported companies. Over 65 US firms are located in the mid-west region which has had some devastating job losses recently such as Dell in which 1,700 people lost their jobs. Almost two out of every three foreign direct investment projects which came to Ireland in 2008 originated in the US. In the same year, US firms paid €2.5 billion in corporation tax into the Exchequer, approximately 40% of the total corporation tax take for 2008. They contributed a further €13 billion in expenditure to the economy in terms of payroll, goods and services, etc.

Ireland‘s rate of corporation tax, 12.5%, was introduced by the rainbow coalition Government and has contributed enormously in terms of promoting the country as a location for foreign direct investment. While US firms contribute significant tax receipts, the lower tax rate actually makes those US companies more competitive, a point which the US Administration should bear in mind.

Some commentators in the US claim the US President’s measures will target offshore tax havens rather than countries like ours which have low corporation tax rates. Ireland has also signed up to many tax treaties with the US. However, while Mr. Obama’s recent speech on the US tax regime did not outline specific details, it is concerning that its accompanying factsheet identified three countries – Ireland, Bermuda and the Netherlands – as tax havens for US multinational companies.

Ireland has a long and proud history of association and friendship with the United States. No other world leader was fortunate to have had the opportunity to meet with the new US President so soon after his inauguration as our Taoiseach had. This is due to the rapport built up between both countries, culminating in the Irish taking over the White House on St. Patrick’s Day.

The Shannon and mid-west region values the importance of American industry and tourism to its economy. The co-operation between both our countries will culminate shortly in the opening of full US pre-clearance customs facilities at Shannon Airport which is very welcome. I urge the Minister of State and my constituency colleague, Deputy Killeen, who is also present in the Chamber, to remind the Minister for Transport, Deputy Dempsey, the urgency to bring the relevant legislation before this House so the facility can be up and running by 1 July as promised.

Many key US Democrats are not lit up with enthusiasm for this plan. Senator Max Baucus, chairman of the US Senate finance committee, reacting to Mr. Obama’s proposals said further study is required to assess the impact of the plan on US businesses. There is much to play for and I believe the Irish US lobby is hugely influential. No stone should be left unturned to get the message across to the US that Ireland is not a tax haven. These proposals could have significant implications for the future of US investment in Ireland. Yesterday, the US Chamber of Commerce said they were an unacceptable burden on American firms. We cannot have another Dell scenario and I ask the Minister of State to put a co-ordinated strategy in place to deal with Mr. Obama’s proposals.

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Dara Calleary): I thank Deputy Breen for his good wishes and for raising this topic. This is an important issue and, consequently, it is being closely monitored and acted upon by the Government on an ongoing basis. However, I would encourage all to take a measured view of yesterday’s developments. While the Government is treating the matter seriously, this is not simply an issue for Ireland. This is about how the US tax regime for US companies works globally rather than posing some imminent threat to Ireland.

The Government will make certain the mutual interests of Ireland and the US are highlighted during consideration of this issue by the US Administration and Congress on an ongoing basis. I agree with the Deputy regarding the importance of US foreign direct investment in Ireland. US business is the largest component of our overseas investment with over 500 US companies operating out of Ireland which have invested over €55 billion. While detailed and final provisions are yet to emerge, the US President, Mr. Obama’s proposals are likely to have some impact on this activity.

Ireland is, however, recognised as one of the best locations in the world for foreign investment for a wide variety of reasons. The level of foreign direct investment in Ireland, relative to the size of its economy, is one of the highest in the world. US and other international investors choose Ireland for several reasons: efficient access to EU and near-markets; skills mix; English and other language skills; and financial consideration, of which the corporate tax rate is one element.

The US Administration has announced part of its plan to reform its international tax laws and improve enforcement. First, reforms have been proposed to ensure the US tax code does not, in its view, unduly incentivise job creation outside the US. Second, the administration seeks to reduce the amount of US taxes lost to so-called tax havens, either through unintended loopholes or through illegal activity. There is an important distinction between action against tax havens and proposed changes to the broader US international tax system. Ireland is not considered a tax haven by the US and proposals in this area should not be any threat to our interests.

Deputy Breen called for a co-ordinated strategy to lobby the US Government and focused effort to protect jobs in Ireland. Both are already in place. The Government has been monitoring and expecting the recent developments. The issue was raised with the US Administration by the Taoiseach, the Minister for Foreign Affairs and the Tánaiste and Minister for Enterprise, Trade and Employment, who met with the US treasury secretary, Mr. Timothy Geithner, on recent visits to the US.

A monitoring system on developments in the US international tax code has been in place for several years. In addition, a contact group, comprising senior officials from the Departments of Enterprise, Trade and Employment, Finance and Foreign Affairs, IDA Ireland and the Revenue Commissioners, has been meeting regularly on US tax policy issues for the past six months and will continue to monitor developments closely.

Now that the US Administration has announced its initial proposals, we will continue to engage with it and with Congress as this issue develops. To this end, IDA Ireland has deployed a senior executive to the Irish embassy in Washington as a point person to monitor and engage with this issue.

Regarding job creation and protection, we must continue to invest in our people to ensure we have the skills and knowledge to support the vision set out in the programme for sustainable economic renewal. We will support those who have lost jobs due to the economic downturn and provide them with opportunities to re-enter the workplace. Over €1 billion of the Department’s budget for 2009 is targeted at labour force measures, including activation and training programmes for the unemployed, upskilling for those in employment and employment programmes. In addition to these major programmes, the Cabinet committee on economic recovery has been working across the Government to deliver the best support and results for enterprises. We are also supporting enterprises through other measures, such the new enterprise stabilisation fund with its budget of €100 million.

The US proposals must now go to Congress for intense and lengthy debate. Assessing the impact of the proposed changes on present and future levels of direct investment by US companies in Ireland is dependent on more detail and we should be conscious that nothing has been enacted thus far. The proposals have potentially wide-ranging effects for US companies as well as for destinations of US investment worldwide, including Ireland. Consequently, the proposals have not been universally welcomed in the US. In addition, the US Government has clearly signalled that it is conscious of the need to maintain the competitiveness of US companies operating globally. The Government will make sure that the mutual interests of Ireland and the US contribute to consideration of this issue by the US Government and Congress on an ongoing basis.