Ireland could lose pharma tax to US after Trump accusations, experts warn
US pharmaceutical companies based in Ireland are more likely to shift profits back to the US than close manufacturing plants after Donald Trump accused Ireland of stealing American tax and jobs, experts say.Aidan Regan, a professor of political economy at University College Dublin, said the US president was right to call out the trade imbalance created by US pharmaceutical companies in Ireland, arguing the warning signs have been there for years.“Trump is right.And it was refreshingly honest what he said.I imagine the Irish government would feel the same way if it was Irish companies all over the globe making all their sales in Ireland but shipping their profits offshore,” he said.
Trump, at a meeting with the Irish taoiseach, Micheál Martin, repeatedly took aim at Ireland’s success in luring big pharma.“Ireland was very smart.They took our pharmaceutical companies away from presidents that didn’t know what they were doing and its too bad that happened,” Trump said.About €50bn (£42bn) of medicines are exported worldwide from Ireland every year, according to official data, and Regan says many “never touch Irish soil”.“Without these accounting-based exports, Ireland’s trade surplus would be much smaller.
The companies may not disappear but their taxable profits in might,” he said.He said the “massive deficit” Trump was referring to was partly a result of a practice known as “profit shifting”, in which companies manufactured drugs partly or entirely outside Ireland, but because the legal ownership or intellectual property was held in Ireland, profits were booked there.“One could argue that up to half of the corporate tax take in Ireland is volatile and based on, quite frankly, phantom exports,” Regan said.He said Trump’s team were very aware of this and could redress the imbalance through tariffs and amendments to the Tax Cuts and Jobs Act, US legislation introduced in 2018.“It is designed to try to incentivise a lot of that profit to be relocated back into the USA, and in some cases it was, but there’s a lot of loopholes in that legislation, which meant that it was much more profitable for the pharmaceutical sector, in particular, to move more profit into Ireland.
“Trump and his team are very aware of that and could just tweak the tax code to put pressure on the companies to [move] more profit to the US,” he said.Dermot O’Leary, an economist with Goodbody stockbrokers in Dublin, agreed that tax would be far quicker to repatriate than jobs.Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotion“From a manufacturing point of view, it takes a lot more than a four-year presidential term to actually find the land, put the plan in place, get the planning, build the factory, get the skills in place.But what can happen a lot more quickly is in relation to the profits generated and the intellectual property,” he said.He pointed out that the danger for Ireland was twofold.
If the US dropped its corporate tax from 21% to 15% in line with Dublin, then Ireland’s tax advantage would be wiped out.But O’Leary also believes Trump could slash two other tax rates, 10.5% and 13.125% that apply to profits on IP activity, to lure US companies back.Successive Irish ministers have conceded Ireland is vulnerable.
As recently as November, Simon Harris, the then taoiseach, warned it could lose €10bn in corporate tax if just three US multinationals were repatriated to the US,Official data released earlier this year shows Ireland took €28bn in corporate tax last year,The increase coincided with highly profitable multinationals “onshoring” their valuable IP assets to Ireland,The country’s fiscal watchdog estimates 75% of all corporate tax is paid by large US multinationals, with three firms alone responsible for almost 40%,On tariffs, Oliver O’Connor, the chief executive of the pharma trade body the Irish Pharmaceutical Healthcare Association, told RTÉ he was “confident” the 50,000-strong workforce in the sector in Ireland would be there in five years’ time.
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