The critical importance of US multinationals to the Irish economy cannot be overstated. Some 700 American companies have located here and they contribute over €3 billion annually in corporate and indirect taxes to the Exchequer. They have set up here for a range of reasons, with tax a key consideration. Ireland has one of the lowest corporate tax rates (12.5 per cent) in the developed world, while the US (35 per cent) has amongst the highest.
President Barack Obama wants to simplify the US tax code - which he has described as "deeply flawed" - because it creates perverse tax and employment incentives. It encourages American companies both to keep their money overseas - where "they pay little or nothing in taxes" - and also to create jobs abroad rather than at home. Mr Obama, in a further attempt to win Republican support for his efforts to stimulate the economy, has outlined "a grand bargain for middle class jobs". His proposals would cut corporate tax to 28 per cent, eliminating tax loopholes and using the extra revenue to increase infrastructure spending, and to boost the manufacturing sector.
Unsurprisingly, the Republicans have greeted the president's revised "grand bargain" proposal with scepticism. They have long favoured using the revenue gains from tax reform to lower individual tax rates. Once again the president's plan may be facing stalemate in Congress. And with US mid-term elections next year, time is not on Mr Obama's side. Last month the OECD outlined its ideas for global tax reform. And in June, the Group of Eight world leaders meeting at Enniskillen also backed in principle major tax reform to ensure multinational companies can no longer minimise their tax bill, by aggressive tax avoidance. That said, achieving international tax reform takes time. It could take the OECD up to three years to draft proposals to reduce tax avoidance. But it could take governments far longer, first to agree and then to implement any new international tax code.