The tax plan put forward by US treasury secretary Steve Mnuchin will, if enacted, mean one significant change. It will remove the current incentive for US companies to establish subsidiaries overseas which results in a reduction in their overall corporate tax bill.

Tax experts believe that this could mean fewer US companies setting up foreign bases in lower tax locations in future – and thus a slowing in the flow of foreign direct investment (FDI) to countries such as Ireland.

US companies will continue to invest overseas to serve markets outside the US, but the pace of new investment could well slow due to the tax changes.

At the moment tax is levied at 35 per cent on corporate profits in the US, one of the highest rates internationally. And so it has made sense for many years for US multinationals to establish operations in countries where lower tax rates are levied and to then sell into other markets from there.

This means lower tax on profits earned outside the US.

Lack of detail

Ireland’s pitch to these companies has been to use here as their headquarters to sell into Europe – and sometimes beyond into the Middle East and Asia, too. We did this via a corporation tax rate initially of zero, then 10 per cent and now 12.5 per cent.

This is not the only reason why US companies establish operations here, but it is one of the reasons. If US companies can, in future, pay 15 per cent tax at home, then the push for them to move abroad will lessen.

It remains to be seen if the new tax plan can be agreed by Congress, with a significant question about how it will all be paid for. Notable was the lack of detail in what was announced on Wednesday, and the unwillingness of Mnuchin to answer any detailed questions. But there is a good chance now that the main US corporate tax rate will fall, and fall substantially.

US president Donald Trump also announced a plan to encourage US companies to repatriate funds held offshore. Typically big companies – such as Apple – have left billions in profits earned outside the US in offshore tax havens. Repatriating them to the US would have meant giving 35 per cent to the revenue. Now the Trump administration is promising a once-off incentive – the proposal is rate of 10 per cent – to try to get these funds back home.

One encouragement for Ireland is that the proposal for a so-called border adjustment tax has not progressed, though it has not been entirely abandoned. This would have imposed a tax on goods coming into the US and given a tax incentive for exporters.

Penalised

It would thus have encouraged US companies to manufacture at home for world markets and penalised companies – such as those in the pharma sector – who manufacture in Ireland, or elsewhere, for the US market.

This is now to be subject to further discussions, but Irish authorities and the IDA will hope that it will slowly die as an idea. Its likely demise was particularly welcomed by Ibec.

The problem for the administration, however, is that the border adjustment tax was to raise revenue to pay for the rest of the plan. Now the argument will be the trickier one – that higher growth from the tax cuts, which will also mean lower rates for SMEs and individuals, will increase revenue.

Self-financing tax cuts is a tricky concept and while Senate Republican leader Paul Ryan voiced initial approval for most of the plan, there are long and tough talks to come.