Finance Bill tax changes set to help Ireland become EU funds centre

 

IRELAND’S FUNDS industry is gearing up to position itself as the European funds centre of choice, after the assertion by Minister for Finance Brian Lenihan in December’s budget that he would bring forward taxation changes which “will strengthen Ireland’s competitive edge in this important sector” in the forthcoming Finance Bill.

The industry, largely based in Dublin’s IFSC, has broadly welcomed Mr Lenihan’s commitment to making the changes, which are seen as necessary after two new European regulations – Undertakings for Collective Investment in Transferable Securities (Ucits) IV and the Alternative Investment Fund Managers Directive.

Gary Palmer, chief executive of the Irish Funds Industry Association, said he was “thrilled and delighted” with the Minister’s declaration, explaining that it will help Ireland remain competitive as a funds centre.

Earlier this year, Ucits IV, which will introduce a broad range of changes for the European funds industry including the creation of a European passport for Ucits management companies, was passed. This means that funds authorised in one EU state will now be able to be managed remotely by companies established in another member state and authorised by that member state’s financial supervisory authorities.

As such, this is likely to result in fund managers looking to centralise their management companies in one location.

While this could pose a threat to Ireland’s position as a funds centre, given that some funds companies will look to centralise operations in their home markets of the UK, France or Germany, it also, as Mr Lenihan said, provides an opportunity for “Ireland to become the European hub for the international funds industry”.

Hence the need for fiscal enhancements to make Ireland more attractive than other locations. A recent survey by KPMG and RBC Dexia said Dublin would be a likely winner from the change, although not as likely as close competitor Luxembourg.

Brendan Kelly, director of Financial Services Ireland, said the changes would “deepen the pool” of activities in Ireland and make it more attractive for companies looking to locate here, as well as funds looking to domicile. “If we get this right, it could create up to 5,000 jobs over the next five years,” he said.

To date, the funds industry has weathered the global financial crisis quite well, with relatively low levels of job losses, although there has been a significant fall-off in business. For example, in 2008, values of Irish-domiciled funds dropped by 20 per cent, although they have recovered somewhat in the year to October 2009, increasing by 9 per cent.

The decline in non-domiciled funds administered in Ireland, however, which typically include private equity and hedge funds, was more severe.

In the year to September 2009, values fell by almost 35 per cent.