The vice-president of tax of a major US multinational commented to me last Tuesday that he didn't know of another country in the world where proposed US tax changes would be the lead story in the national newspapers. I am sure that he is right, and that both Irish and international tax issues will continue to make Irish headlines.

The pace of change in the international tax arena is staggering and the potential relevance and impact of those changes on the Irish economy has never been greater.

As the US is by far our most important source of inward investment (US multinationals employ more than 100,00 people in Ireland) it is not too surprising that any change which might impact in this area will be of widespread interest in Ireland.

The recently announced US tax proposals will have an impact on US companies and their international structures.

It is important, however, to be clear about what the proposals will do, and will not do, and why this is relevant to Ireland.

The low tax rate in Ireland is of value to US multinationals because the US tax system does not tax the profits of a foreign subsidiary (including Irish subsidiaries) until the income is paid up to the US, typically by way of dividend.

At this point, it is taxed at the US rate of 35% (typically with a credit for the Irish taxes paid on the same income).

The 'deferral' of US tax pending repatriation is, therefore, key to the value of the low Irish tax rate for US multinationals.

President Barack Obama's proposed changes provide for a number of amendments to deferral, but critically do not provide for its repeal. This means that US companies should continue to be able to benefit from Ireland's low tax rate, which is of central importance.

The backdrop for much of the discussion in the US regarding foreign tax changes has been focused on tax havens, tax evasion, and "inappropriate" tax planning.

Obama has several times referred to unacceptable tax scams involving tax havens, and there have been significant discussions with a number of countries regarding banking secrecy and the role which it may play in facilitating tax evasion by US and other citizens.

The proposed provisions are generally focused on these areas of concern and can be summarised as follows:

Expense allocation

The US tax system allows a deduction (against US taxable income) for certain expenses incurred where the expense relates to a foreign subsidiary. This might include, for example, interest costs on borrowings used to fund an overseas investment.

The proposed change is intended to restrict the deduction to the proportion of foreign income which has actually been subject to US tax. The rationale is to seek to ensure that a deduction is only allowed to the extent that there is corresponding US taxable income.

Foreign tax credit calculations

The US rules for calculating the amount of the credit allowed against US tax for foreign taxes paid are complex and the proposals set out to tighten the rules to prevent abuse.

There are also indications that the changes may provide for a more general streamlining of the tax credit system, for example by treating all foreign income as having been subject to the average foreign tax rate suffered on that income.

This would be a significant change, and would constrain companies in their ability to manage dividend flows from high and low taxed countries.

'Check-the-box' planning

It is possible under US tax rules to make an election (to "check the box") to treat a foreign entity as a flow-through or partnership for US tax purposes. The objective is to facilitate flexibility to transfer activities between related entities without triggering an unintended tax cost. However, there is a perception that these rules have been used to facilitate tax structuring which is considered unacceptable, particularly where it involves tax havens, and the proposals suggest a restriction (or possibly even repeal) of these rules.

This change will likely require many US multinationals to re-visit their current international structures.

Tax havens

Although there is a strong general emphasis on tax havens in the thrust and tone of the proposals, the specific provisions are more narrowly focused on individuals, and seek to ensure that US citizens will not be able to evade taxes by using tax havens.

The proposals will typically result in US multinationals having to review and amend their international structures to take account of the expected changes.

However, US multinationals with businesses in Ireland will continue to be able to benefit from the 12.5% corporate tax rate. These businesses employ significant numbers of people and are active and substantive operations. This is key – Ireland is not a tax haven, it is a low tax jurisdiction which taxes profits from active trading operations at the 12.5% tax rate.

The key message for Ireland is that it continues to be an acceptable and attractive location for US investment. Continuing to enhance and develop our tax regime to ensure we stay competitive is key, and the recent improvements to our R&D regime as well as the introduction of the new Intellectual Property regime in last Thursday's Finance Bill are very good examples of this.

Colm Kelly is head of tax and legal services at PricewaterhouseCoopers