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Moody's: Brexit, US Tax Reform Dual Threats To Ireland

by Jason Gorringe,, London

03 March 2017

Ratings agency Moody's has said that the Irish economy faces risks from the impact of Brexit and the prospect of US corporate tax reforms.

Kathrin Muehlbronner, Moody's Senior Vice President, commented: "Ireland has been growing strongly since 2014 and we expect it to continue to do so in the coming years."

"But the UK's withdrawal from the EU could bring significant disruption to Ireland as the UK aims for a free trade agreement rather than participation in the single market. In addition, there is now the prospect of major corporate tax reforms in the US which constitutes an additional risk for Ireland's FDI-focused economic model."

Moody's anticipates that Brexit will lead to lower export growth and disruption to supply chains. In addition, there may be a need to establish controls at the border with the UK, which is Ireland's second-largest export market after the US.

According to Moody's, Ireland will likely be a key beneficiary from the diversion of investment to the UK. Higher foreign direct investment inflows could mitigate some of the negative impact of Brexit. However, it warned that Ireland faces important supply constraints and may not be able to realize its full FDI potential.

Moody's acknowledged that the details of any US corporate tax reforms have yet to be announced. Nonetheless, it pointed out that multinationals originating from the US account for around half of all foreign companies located in Ireland, and that Ireland's low corporate tax rate has been an important driver for foreign investment.

It said that big changes to US corporate tax rules could result in a reduction in new investment inflows into Ireland, and that Ireland's public finances would also be negatively affected.

TAGS: tax | investment | Ireland | corporation tax | United Kingdom | multinationals | tax rates | United States | tax reform | trade | European Union (EU) | Europe

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