Brussels sanctions capital allowances for IFSC tenants

The European Commission has given its approval to capital allowances for buildings in the Custom House Docks Area, a move that has been welcomed in both official and business circles.

The Commission said it was approving the allowances because it regarded them as a regional investment aid but it announced a State aid investigation into the double rent relief and rates remissions granted to tenants of buildings in the area since May 1993.

"The Commission considers these to be illegal aid, since Ireland never notified the scheme, and to constitute operating aid. With very narrow exceptions, operating aid is presumed to be incompatible with the EC Treaty," the Commission said.

However, the decision is not final and interested parties, including the Government, will have a chance to submit their views. Sources in Brussels say the Commission will write to the Minister for Finance, Mr McCreevy and the Government will then have a month to reply, after which the Commission will hear the views of other interested parties. It could be early summer before the issue is resolved and it becomes clear whether IFSC tenants have to pay back the money made from both sets of reliefs since 1993.

Officials have yet to calculate the value of the two reliefs to firms who have located in the Custom House Docks area in the last five years. But as many as 35 to 40 companies a year have moved in there and up to 150 companies may be affected. Mr McCreevy, who welcomed the decision on capital allowances, said the Government intended to put the strongest possible case in relation to the rent relief and rates remission. It will be pointing out that the Commission approved similar reliefs for enterprise zones in Dublin and elsewhere as recently as February 1998.

However, the Government has confirmed to the EU that it has discontinued new awards of both reliefs in the areas in question. This means that companies moving into the 12-acre extension to the International Financial Services Centre (IFSC) will not qualify for rent or rate relief.

An IDA Ireland spokesman said this should have a limited impact on most of the IFSC companies who pay tax at a rate of 10 per cent. It would not have much effect on the ability to attract companies to the area either as the main draws for most companies were the low corporation tax rate and the availability of skilled employees; the rent and rates reliefs were simply added incentives. "The most significant thing is the embarrassment factor from a marketing point of view," he said.

More than 400,000 sq ft is under construction in the IFSC extension at present and among the firms planning to move there are Citibank, US insurer AIG, Bank of Ireland, FBD and solicitors A & L Goodbody.

Citibank, which will take 215,000 sq ft for its European headquarters, said the project would have gone ahead one way or the other but welcomed the announcement on capital allowances.

The consortium behind the proposed new national conference centre, Spencer Dock International, will, however, be keeping a close eye on the outcome of the EU inquiry.

The proposal was costed and proceeded on the basis of certain tax designations being in place. Without these allowances, the project might not be able to proceed. As a result, the consortium will be very interested in what the Commission allows as exceptions under its state aid rules.