With a Federal rate of 35% since 1993, plus state-level taxes ranging up to 3.9%, the US has one of the highest headline corporate tax rates in the world. This compares to an average of 25% across the 35-member OECD. Moreover, the trend in headline rates has been downward, and accelerating, with Ireland having been in the vanguard in this “race to the bottom”.

OECD corporation tax rates (%) since 2000 Photograph: OECD

A system riddled with loopholes

Of course, that’s not the full story. In the absence of fundamental reforms – and in the presence of special interest lobbying – the American tax system has become riddled with loopholes and tax breaks. In fact, the average tax rate paid by the biggest – Fortune 500 – firms was less than 20% between 2008 and 2012.

In a fine example of American exceptionalism, they do things a little different to most countries. Up to now, US citizens and companies are obliged to pay US taxes on their worldwide income, no matter where they live or are incorporated.

In practice, the existence of so-called “double taxation treaties” with other countries, means that only this only applies where the relevant individual or corporate tax rate is lower in the other country than in the US.

Often, for US citizens, this isn’t a big issue, since US tax rates on individuals are already quite low, and about to get lower, so they don’t have to pay anything to the IRS (the US equivalent of our Revenue Commissioners) back home.

For firms, however, the tax differential can be enormous. Apple Inc paid an average rate of only 0.005% in Ireland in 2014, on its European profits for example. In theory, the balance – adding up to the Federal rate of 35% – is owed to the IRS.

But, here’s the rub… this tax is only payable upon repatriation of profits to the US. And, repatriation can be deferred indefinitely. This is why many of the biggest American firms maintain mountains of cash overseas. The Fortune 500 held an estimated USD 2.5 trillion ($2,500,000,000,000) overseas in 2015 – two thirds of which is accounted for by the 30 biggest, and 8.6% by Apple Inc alone – and add about USD 100 billion to this pile every year.

But, these cash piles can only be returned to shareholders in the form of dividends when repatriated to the US. Basically, they have been playing a giant game of chicken, waiting for the US government to sweeten the deal before bringing home the bacon.

How do Trump’s latest tax proposals fit in, and what would they mean for Ireland?

Any decrease in the US corporation tax rate makes Ireland relatively less attractive as an FDI destination for tax reasons. A headline rate of 15% – if it were to be achieved, which is in any case unlikely – could be a game-changer.

Any significant reduction in the headline rate will see a slowdown – and possibly a reversal – in the trend in so-called “re-domiciliations for tax purposes” whereby vast swathes of intellectual property are transferred, for example, from Silicon Valley to Dublin’s Silicon Docks. That would be the end of Leprechaun economics. Similarly, any one-time amnesty or reduced rate offered on the repatriation of profits is likely to have the desired effect – a westward flood of cash across the Atlantic.

But, while the amount of profit, tax, cash and intangible assets involved could be astronomical, hurting Irish tax revenues and growth figures, it doesn’t necessarily follow that significant numbers of jobs will be lost, or that real living standards will be reduced.

It certainly doesn’t mean all US multinationals will up and leave at once, just that any part of their operations located here – or in Luxembourg, the Netherlands etc – solely for tax reasons is vulnerable to relocation back to the US. Of course, they will still need a European base for their manufacturing and sales operations, but the IDA’s trifecta of ‘tax, tech and talent’ may find itself short a “T”.

We have been warned

In a sense, we can’t say we weren’t warned. John Kerry, in 2004, and Barack Obama, in 2008, also campaigned for the US Presidency on pledges to reform the corporate tax code by reducing the headline rate, eliminating loopholes, and encouraging the repatriation of profits. More recently, both the OECD and the EU Commission have been working (separately) to harmonise the rules of the game relating to the corporate tax base – what is taxed and where.

On the plus side, Ireland – and any country relying on international trade – can be relieved that the Trump administration appears to have ditched support for the “border adjustment tax“ that had been under consideration by Congress for months. This could have had a similar impact to a tariff, and been detrimental to Ireland’s economic model.