Irish stock exchange presses Government for tax breaks to boost IPOs

Euronext Dublin, the operator of the Irish Stock Exchange, has called on Minister for Finance Paschal Donohoe to introduce tax incentives for entrepreneurs to help boost initial public offerings (IPOs) in a market where flotations have trailed global trends since the financial crash.

In a submission to the Government ahead of Budget 2023, which is set to be unveiled on September 27th, the exchange operator said that while IPOs open an avenue for companies to raise money to grow, they should “also reward entrepreneurs” for the risk they take in building a company. Most founders pay themselves “below market rates” to get a businesses off the ground, it added.

“An IPO can create an opportunity for founders to sell some of their shares at the time of IPO or at a later date after a lock-up period. Having appropriate tax incentives to allow founders to sell part of their holdings could help boost IPOs,” said Euronext Dublin, led by chief executive Daryl Byrne. “The majority of founders will have paid themselves below market rates, while bootstrapping the business over many years.”

Euronext Dublin said a measure such as reducing capital gains tax for entrepreneurs or founders selling a part of their holdings “in the context of an IPO and/or in staged elements in subsequent years would be beneficial and an important decision factor for founders choosing between an IPO, trade sale or other form of financing”.

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Tax credits

The submission also called for the introduction of a tax credit scheme to reduce the costs of accessing public markets for small- to medium-sized Irish businesses.

“For smaller SMEs, the cost of issuance may amount to 15 per cent of the capital raised through listing, making IPOs an unattractive way of raising new funding [in particular compared to other alternative sources of financing, such as private equity],” Euronext Dublin said.

“To assist in enhancing the attractiveness and accessibility of Irish public markets to Irish companies, in particular SMEs, we consider that it would be beneficial to introduce a tax credit regime for expenses incurred by a company as part of its IPO process.”

Euronext said that a tax scheme could be capped at €1 million and apply to businesses that have a market value of less than €500 million at the time of flotation. Sweden, Italy and Hungary currently have such market incentives, the submission noted.

Euronext Dublin said that the costs of the tax incentives “would be very low for the exchequer, whereas the benefits would be considerable, especially given the potential contribution of newly listed scaling Irish companies to the continued growth of domestic employment and the Irish economy”.

Global trends

The Irish exchange’s IPO activity trailed global trends during an international equities bull run during the past decade, with its pipeline mainly saved by the post-crash flotations of four real-estate investment trusts (of which only Ires Reit remains listed), two housebuilders, and the return of AIB to the bourse’s main market in 2017.

Renewable-energy storage company’s Corre Energy and HealthBeacon, a medical technology company, were the only Irish stock market listings in 2021, in an otherwise record year for IPOs globally in which a total of more than $600 billion (€599 billion) was raised.

Meanwhile, exits from the Irish market continued over the past two years, with the likes of recruitment firm CPL Resources and fuel forecourt retailer Applegreen, as well as property groups Yew Grove Reit and Hibernia Reit being acquired.

Elsewhere, Swiss-Irish backed goods group Aryzta scrapped its Irish listing last year, underscoring how the group’s centre of gravity has moved to Zurich from Dublin. Tullow Oil said last week that it is also abandoning its Irish listing as its shares continue to be traded in London and Ghana.

IPO’s worldwide fell almost 50 per cent during the first half of 2022, with the number of technology companies going public plunging 61 per cent, according to EY, as equities plunged in value amid rising inflation, interest rates and fears about the Ukraine war and global economy.