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HQ regime puts Ireland ‘in the driving seat’ Back  
The decision in this year’s Budget to make Ireland a more attractive location for headquarters/holding companies has been broadly welcomed by the financial services industry, who see it as a chance for Irish based subsidiaries of international companies to play a greater role in determining the company’s strategic objectives.
The move to encourage multinational corporations to locate their regional headquarters and holding companies in Ireland, by the introduction of Capital Gains Tax (CGT) exemption for Irish resident companies on the disposal of a substantial shareholding in their trading subsidiaries, has been broadly welcomed by the financial services industry.

Ireland is one of the few EU member states that do not have a holding company regime, and the decision to exempt the disposal of subsidiary companies from capital gains tax, as well as expanding the scope of double taxation relief provisions for dividend income paid to parent companies in certain cases, is being seen as rectifying this.

Aileen O’Donoghue, director of industry association Financial Services Ireland (FSI), which lobbied the Government to introduce the measure, says that the Budget decision will, ‘help put Ireland back in the driving seat’. ‘We are now on the way to establishing ourselves as a serious base for headquarters and holding companies. This is an important development and it will facilitate greater Irish influence on key investment decisions for Ireland,’ she added.

Pat Cullen, national tax partner with Deloitte, says that the decision will enable Ireland to compete with countries such as the Netherlands, Luxembourg and the UK as a location for holding companies.

The concept of a holding company regime in Ireland is not new, and the financial services industry has long lobbied for its introduction, but the Government has always shied away from it.

James Deeny, recently retired head of HSBC Bank in Dublin, and ex-chairman of the Federation of International Banks in Ireland, remembers talk of it 20 years ago, when he was working with the IDA. He believes that if the Government had bit the bullet at the time, the industrial landscape would now be stronger and less subsidiary based.

President of the Institute of Bankers in Ireland Aidan Brady, who is also chief executive of Citibank Ireland, says that, ‘headquarters drive the value chain decisions in any enterprise - and we need to attract those headquarters here’.

The provisions will only apply to relevant disposals of subsidiaries in the EU, or in countries with which Ireland has a tax treaty on or after the date of publication of the Bill, but writing on page 10, Brian Daly, a partner with KPMG says that he hopes the Minister will consider extending it also to subsidiaries located anywhere in the world, where the ultimate control is by a company resident in the EEA or in a treaty state. This, says Daly, would ensure that, for example, an American multinational could hold subsidiaries in locations such as Bermuda, through an Irish sub-holding company. Full details of the measure will be in the Finance Bill, to be published in February 2004.

It was expected that the Minister would introduce transfer pricing rules on cross border transactions between related parties in the Budget, but as it is now apparent that under EU law transfer pricing has to apply to domestic transactions as well as cross-border transactions, it appears that transfer pricing may be off the agenda.

Another measure that was expected to be introduced in the Budget, and which the financial services industry had lobbied for, is a relaxation of the leasing ring-fence, so as to permit the offset of allowances on losses from leasing against other financial service income of the leasing company.

Ireland is one of the leaders in the cross-border international leasing business, with a significant number of companies operating in this sector. However, the failure to rectify this situation is expected to compromise Ireland’s position, as there is an increasing awareness in the asset finance industry internationally of the discriminatory tax treatment in Ireland of capital allowances.

However, the measure may yet be included in the forthcoming Finance Bill, but industry sources are sceptical about this as they feel the Government do not fully understand the issue and are reluctant to introduce it.

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