IRELAND: Risks From Potential US Tariffs - Corporate Tax Vulnerability (1/3)

Feb-13 15:01

US President Donald Trump has signalled aggressive measures to take action on corporation taxation, which is increasingly worrying for Ireland given its dependence on multinational firms for tax receipts.

  • Trump signed an executive order effectively pulling the US out of the Organisation for Economic Co-operation and Development (OECD) corporate tax agreement of a global corporate tax rate of 15% on firm revenues over E750mln, and making threats about the taxation of US multinationals if other countries take measures which disproportionately affect US companies.
  • If this goes ahead, Irish corporate tax receipts are vulnerable - the top 10 multinationals account for around over half of corporation tax receipts (according to a revenue report the top 10 in 2023 accounted for 52% of CT receipts, slightly down from 57% in 2022). If any of these firms relocate it could significantly affect receipts.
  • On top of this, Tánaiste (Deputy PM) Simon Harris recently highlighted “If three US companies left Ireland it could cost us [the Irish economy] E10bn in corporation tax." This E10bn loss would represent around 25% of 2024 corporate tax receipts, though would be even higher excluding the Court of Justice of the European Union (CJEU) ruling payment of around E11bn in 2024 (around 36%). (Note: A CJEU ruling in 2024 that two Irish subsidiaries of the Apple group received unlawful state aid from Ireland, and therefore Ireland was ordered to recover a total of E14bn back in taxes from Apple).
  • Important to note however, in order for this sizeable loss to occur the three largest corporate tax-contributing multinational companies operating in Ireland would have to leave Ireland rather than any three.
  • Even so, there is a significant concentration risk highlighted by over half of corporate tax receipts coming from just 10 companies.
  • Whilst tax changes could attract firms back to the US, other practicalities have to be considered such as the ease to move factories, plants and infrastructure though this may be less relevant for companies domiciled in Ireland. In 2023, the manufacturing sector accounted for 38% of corporate tax receipts, followed by ICT (17%) and finance & insurance was the third largest contributing sector at 15%. 
image

Historical bullets

ECB: Weekly ECB Speak Wrap (Jan 1 – Jan 14)

Jan-14 15:01

Since the turn of the year, ECB speakers have generally re-iterated that the case for further rate cuts is solid. ECB implied rates have nonetheless been dragged higher by USD and GBP counterparts, with OIS now pricing 89bps of cuts through year-end (down from around 115bps on December 31). 25bp cuts are still essentially fully priced through the January and March meetings, but implied odds of a larger 50bp move have been removed. 

  • Since Jan 1, Stournaras, Villeroy, Lane, Rehn and Vujcic have supported the case for further policy easing, with the hawkish Holzmann unsurprisingly presenting a more cautious view.
  • The recent surge in crude oil and natural gas prices may present a fresh upside risk to the inflation outlook, though Executive Board member Cipollone noted on Jan 9 that the “December projections already assume gas prices in 2025 will be 25% higher than the average for 2024”.
  • Meanwhile, Lane and Vujcic commented that more progress is still needed on services inflation. For MNI’s recap of the December flash inflation data, see here.
  • The ECB projects a consumption-led economic recovery to take hold in 2025, but US trade policy remains a key source of uncertainty. Markets and policymakers await US President-elect Trump’s inauguration on Jan 20 for further developments on that front.
  • In the following, we provide a summary of ECB-speak during the first two weeks of 2025: 250114 - Weekly ECB Speak Wrap.pdf

PIPELINE: $2.5B BNG Bank 5Y SOFR Launched

Jan-14 14:55
  • Date $MM Issuer (Priced *, Launch #)
  • 01/14 $2.5B #BNG Bank 5Y SOFR+47
  • 01/14 $2.5B #CADES 5Y SOFR+68, upsized from $2B
  • 01/14 $3B KFW +5Y +40
  • 01/14 $2B IFC 3Y SOFR+29
  • 01/14 $2B CAF 5Y SOFR+82
  • 01/14 $Benchmark Blackstone Private Cr Fund 7Y +190a
  • 01/14 $Benchmark LifePoint Health 7NC3 
  • 01/14 $Benchmark Adobe 3Y +50a, 5Y +60a, 10Y +80a
  • 01/14 $Benchmark British Colombia 3Y SOFR+45
  • 01/14 $Benchmark BFCM 5Y +120a, 5Y SOFR
  • 01/14 $Benchmark Hyundai 3Y +100a

US DATA: Sequential Producer Prices On The Low Side, Core Momentum Soft

Jan-14 14:50

December's PPI report showed softer sequential price pressures than had been expected: headline final demand PPI came in at 0.2% M/M (0.4% expected, 0.4% prior), with the "core" ex-food/energy/trade category printing 0.1% (0.3% expected, 0.1% prior). From a broader perspective for this volatile series, pipeline inflation remains uncomfortably elevated. But this was not a particularly worrisome report in its own right and core PPI - while still elevated - does not appear to be accelerating.

  • This left the Y/Y figures higher vs November but lower than expected: headline at a 22-month high 3.3% (3.5% expected, 3.0% prior), with ex-food/energy/trade actually decelerating to 3.3% (no consensus, 3.5% prior).
  • So on the one hand, headline PPI has been steadily accelerating Y/Y since bottoming at 0.8% in Nov 2023 and is now at a 22-month high, but Core PPI prices have settling in at above 3.0% Y/Y, where it has been for 9 consecutive months. That lends further credence to the idea that the prolonged period of Y/Y core goods deflation is over - but likewise there are no obvious signs of a pronounced resurgence in pipeline inflation outside of food and energy.
  • Indeed, as the headline figures suggest, food (+6.4% Y/Y after +6.7%) and energy (-2.0% Y/Y after -6.1%) prices have been more inflationary/less deflationary, respectively, on an annual basis.
  • But we interpret the "core" reading to imply that pipeline price momentum has continued to slow: at 1.9%, the 3-month annualized moving average fell to 1.9% from 2.1% prior, well down from over 5% earlier in 2024 for the lowest since December 2023. The 6-month m.a. likewise pulled back to the softest since November 2023.
  • For the two major subcategories of final demand PPI, services inflation was flat, vs 0.3% M/M prior for the weakest since July, while goods inflation came in at 0.6% (after 0.7%).
  • As we noted separately following the release, the PCE-relevant categories were mixed, with a jump in airfares the standout but fairly benign readings in other areas.
image