IFSC in eye of gathering storm
IT’S NO SURPRISE that the Government stood firm behind the IFSC this week in its avowal to stay outside Europe’s new Financial Transactions Tax (FTT) zone.
After all, the international financial services sector in the Republic was born of a Government decision to cut tax
to 10 per cent for qualifying activities back in 1987, while favourable tax decisions have played a major part both in attracting international business to Ireland and in retaining it.
But in its support for the IFSC, has the Government missed an opportunity to generate much needed tax revenue? And given that 11 countries are due to go ahead anyway, will there still be a cost for IFSC businesses?
It’s a proposal that the EU says could raise €80 billion a year in tax revenues if all 27 countries signed up to it, but despite Ireland’s parlous economic position, it has walked away from joining. For the financial services industry, the move was seen as essential to sidestep the French and German-driven measure, given that other European financial centres such as London, Luxembourg and Netherlands are set to stay outside the zone. Failure to do so would have cost jobs, they argue.
“In a situation where London didn’t go in , you would have seen business moving,” says Brendan Bruen, director of Ibec body Financial Services Ireland, arguing that, “it would have hit a very substantial number of jobs across all the activities in the IFSC”.
For Gary Palmer, chief executive of the newly-formed Irish Debt Securities Association (IDSA), introducing the tax would have put the IFSC at a competitive disadvantage.
“Ireland can’t afford to introduce it. If we did, not only would we restrict future growth and employment opportunities, we would compromise our current business and all the jobs in it,” he says.
While the tax would have affected all sectors, from banking to insurance to treasury, it is funds that would have likely taken the biggest hit. With some €2 trillion in assets serviced from Ireland, and more than 10,000 jobs, it could have been a costly strike.
“It’s an extremely flexible industry. It’s very easy for that number of assets under management to be significantly reduced,” warns Seamus Hand, a partner with KPMG, adding that it is estimated that every fund established in Ireland is equivalent to one-and-a-half to two jobs.
Under the original EU proposal, the tax of between 0.01 and 0.1 per cent would have applied to the €1 trillion or so Irish-domiciled funds, and would have applied to money coming into the funds as well as to investments by the funds themselves. Some estimates suggest that Irish-based funds could have been hit by the tax as many as seven or eight times.