US law unlikely to affect firms' Irish deposits

Impending US legislation on the repatriation of profits by multinational companies is unlikely to affect bank deposits here, according to a number of sources.

The Homeland Investment Act, which is expected to be signed into law by the President, Mr George W Bush, was passed by the Senate during the week.

It will allow US multinationals who repatriate profits held abroad, to pay a corporation tax rate of 5.25 per cent on those profits compared to the normal 35 per cent rate. The opportunity will last for a year and the Bank of New York has estimated that up to $120 billion (€96 billion) could be returned to the United States.

The measure was supported by the Democrat and Republican parties and is designed to give a boost to the US economy.

"US companies have typically left profits abroad so that they are available for investment in non-US operations," said Ms Joanne Richardson, chief executive of the American Chamber of Commerce in Ireland.

She said that US operations in the Republic are generally profitable but no figures are available for the amount of unrepatriated profits that exist in the State. However, she said that US corporations do not tend to leave large amounts of money on deposit in the State because of the "high rate of corporation tax on deposit interest".

A Bank of Ireland spokesman said it did not anticipate any significant impact on its deposit base arising from the bill.

A spokeswoman for AIB said the level of deposits from US multinationals was not such that the new legislation would have an impact.

US multinationals can invest their funds with the National Treasury Management Agency (NTMA), the agency that manages the Republic's national debt.

The "section 69" scheme run by the NTMA allows Irish resident multinationals to earn tax-free interest. However, the scheme is geared towards shorter-term investments and has been run down somewhat in recent times, according to the agency.

Because of low interest rates, the NTMA has been pushing longer-term, fixed-rate bonds and recently auctioned €3.4 billion of such bonds. As a result, it does not believe the US law will have a significant effect on investment with the agency.

Many US multinationals have been pushing for the repatriation provision.

Johnson & Johnson, which has significant operations in Ireland, has already indicated it intends to repatriate significant accumulated profits held outside the US - amounting to $7-$10 billion.

The US Treasury has expressed misgivings about the measure and questioned whether it would produce any benefits for the US economy.