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Inside the world of business

Britain to stock up on new tech

Plans by the British government to introduce new rules in order to encourage more companies, particularly in the tech sector, to float on the London Stock Exchange are noteworthy.

The British minister of state for universities and science, David Willetts, outlined the plans on Thursday. They include possibly relaxing listing rules and allowing companies to list as little as 10 per cent of their business rather than the current requirement of 25 per cent.

The aim is to target up-and-coming technology companies, which mainly look to the US when considering initial public offerings.

The Irish Stock Exchange should take note. While no one is expecting the Irish bourse to become a hotbed of tech flotations overnight, the fact that London is taking the lead on generating new business is admirable. Stock exchanges around the world have suffered greatly as a result of the economic downturn and new business is hard to come by. The Irish stock exchange has particular challenges, with a number of Dublin-listed companies jumping ship, mainly to London.

It’s also worth remembering that there was a time when tech companies featured on the Irish stock exchange – companies such as Horizon and Iona floated in Dublin. The Irish tech company most widely expected to float in the near future is Openet, which is expected to raise its cash on the Nasdaq.

As the Irish stock exchange grapples with the dual problem of fleeing companies and a dearth of IPOs, a touch of proactivity may be needed.

The British government’s interest in the issue is also notable. The Irish government has been virtually silent on the challenges facing the Irish stock exchange. Given the link between stock exchanges and economic and financial activity, it is in everyone’s interest to have a strong, active bourse in the capital city.

ECB concerns about Irish insolvency draft

Although one of the Government’s signature pieces of legislation, necessarily far-reaching and designed to impact significantly on both those struggling under the burden of debt and those holding that debt, the draft law on personal insolvency was put in place without the benefit of a “thorough impact assessment”.

That, in surprisingly plain language, is the indictment of the Government at the heart of the European Central Bank’s five-page opinion on the draft legislation.

Acknowledging that the proposal is ambitious in its conception, it reminds the Government that any measures should “above all be workable” and “should not result in blanket mortgage debt forgiveness”. They should also, it argues, be “geared at minimising the risk of abuse”.

“In the absence of an impact assessment, however, it is difficult to be confident that the objectives set by the draft law will be achieved,” it determines, and asks the Government to consider a series of specific points of concern.

Chief among these is the €3 million eligibility threshold for personal insolvency arrangements covering both secured and unsecured debt. The ECB says the inclusion of such large amounts of debt is “unprecedented” and is “many times the average amount of secured borrowings by customers of Irish banks”.

Baldly, its concern is that, in its efforts to address the plight of beleaguered borrowers – particularly those with major indebtedness due to buy-to-let property investment – the Government is potentially putting at risk the health of the wider financial system. Given the burden the State and its taxpayers are supporting precisely to ensure the recovery and viability of those institutions, taking such a risk seems foolhardy.

Whether Michael Noonan intended the bank to do some of the hard work in forcing through necessary but unpalatable changes to the proposed legislation during its passage through the Oireachtas is not known, though it would not be the first time the Government has left it to Troika members to do the heavy lifting on structural reform during the bailout programme. If so, the Department of Finance was, at best, being somewhat disingenuous in its initial dismissal of the ECB’s concern.

Statements of intent: a flaw in US tax law?

The memorandum produced this week by the US Senate committee investigating offshore profit-shifting by US multinationals includes consideration of an accounting standard known as APB 23 which was, apparently, recently renamed ASC 740-30-25. It’s not such a sexy title but, as the late Con Houlihan used to say, read on.

The standard is an “intend-based” one. If you are a US multinational and you have foreign profits you say you intend reinvesting, they can then qualify as “indefinitely reinvested” and be exempt from US corporation tax.

In 2011 more than 1,000 US multinationals said they had reinvested $1.5 trillion in this way. This allowed these companies to report higher profits and lower effective tax rates. The memo quotes a study conducted this year on the issue: “A tax director of a Fortune 500 firm described the Indefinite Reversal Exception like crack : once you start using it, it’s hard to stop.”

The memo says that a large percentage of this money is in fact sitting in bank accounts. This, it said, raises questions about its being designated as indefinitely reinvested overseas.

Which brings us to Ireland and its amazing ability to attract foreign direct investment. In June this newspaper reported that figures from the US showed that US investment in Ireland surged in 2011 to new record levels.

The value of all direct investment by US firms in Ireland stood at $188 billion at the end of last year, an increase of just over $30 billion on 2010. The figure included investment by companies based in the IFSC. Even so, how much of this, one wonders, has to do with our well-educated English-speaking workforce. And how much has to do with difficult-to-disprove statements of intent?

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