Since its establishment in 1987, Ireland’s international financial services sector has moved from its original location in Dublin’s docklands to encompass the entire country, from Donegal to Waterford, and from Limerick to Meath.
Employing almost 20,000 people, the sector, which was created under the auspices of the ‘International Financial Services Centre’, is a major contributor to the Government’s coffers, with corporation tax contributions of ?755.5 million in 2005. So if such a sector can be created once, what’s to stop it happening again if the right conditions exist – for example infrastructural factors similar to those that existed in the particular set of financial services industries that existed at the time the IFSC was set up?
In this month’s issue, Brian Daly, editor of the KPMG Tax Monitor, writes that the EU’s rules on State Aid do not preclude another Government supported initiative from taking root with equal success, rather, ‘the tax needs of that other sector may not be an important aspect of its development’.
He says that the search for a new sector to develop would ideally focus on areas where Ireland possesses the necessary skills. He recommends that the Government initiates a study of what can be done to recreate the IFSC’s success in all three of these sectors, within the limits of State Aids rules. It should also be possible to contemplate a widening of financial services activities outside the scope of those particular sectors that took root in the years 1987 to now.
As for the IFSC itself, a post-IFSC regime still needs to be implemented, and while the Government’s ‘Building on Success’ report marked a step in that direction, the forthcoming Budget and Finance Bill mark an opportune time to address this situation.
There is a strong argument that the IFSC should be freed from the annual cycle of submissions and budget changes in the Finance Bill. According to Daly, ‘the time has arrived to bring this process to an end and provide the financial services industry with the tax reforms that they require. These are not reforms that would cost money - as the entire IFSC project has demonstrated, these are reforms whose delay costs money, and whose implementation generates extra taxes’.
Some of the particular reforms called for include abolition of the technical charge to tax on Irish source interest paid to a nonresident; changes to the dis-allowance of interest paid to a 75% affiliate, at least where the two companies are commonly controlled from a Treaty State, and a similar amendment to withholding tax requirements. |
