Hold on to your hats as ‘hard Brexit’ cliff edge nears
Business Week: Also in the news were the tracker scandal, tax avoidance, and jobs
Brexit warning: the Fine Gael MEP Brian Hayes warned that up to €1.3 trillion in financial-services contracts are at risk from the UK crashing out of the EU without a deal. Photograph: Peter Nicholls/Reuters
The UK departing the European Union without a deal in place has been routinely described as going off a cliff edge – and it might be time to invest in a parachute, as that prospect has gathered momentum this week.
Last Sunday there were warnings of a no-deal Brexit in Dublin, London and Brussels after months of excruciating talks between the United Kingdom and the EU. Taoiseach Leo Varadkar said he was optimistic a deal would be reached but also warned that Ireland needs to prepare for the UK’s crashing out of the bloc in 2019.
In London the British foreign secretary, Boris Johnson, wrote to the prime minister, Theresa May, to say the UK ought to prepare for the same eventuality, while in Brussels the EU’s chief negotiator, Michel Barnier, said it was drawing up contingency plans.
Minister for Foreign Affairs Simon Coveney, whose rhetoric on the UK has hardened in recent weeks, said Government departments were preparing for the fallout from the UK failing to negotiate a withdrawal deal.
But, like Varadkar, he is saying, outwardly at least, that an agreement will be struck. “It would be very, very bad for Britain and for Ireland should [no deal] happen,’’ he said. “I do not believe the British government will allow it happen.’’
Maybe it’s for those reasons that Coveney later vowed that the UK will have no greater ally than Ireland in relation to the talks. He added that the UK needs a transition period of up to five years after quitting the European Union.
The Fine Gael MEP Brian Hayes warned that up to €1.3 trillion in financial-services contracts are at risk from the UK crashing out of the EU without a deal.
It’s not all bad news, though, as Coveney also expressed the hope that the Republic would succeed in its bid to replace the United Kingdom as the home of the European Banking Authority post-Brexit.
Separately, the European Central Bank’s supervisory arm criticised banks’ Brexit relocation plans. It said some were leaning too far towards the “empty shell” model that regulators have cautioned against.
Will banks ever learn?
After last week’s revelations that Bank of Ireland was adding a further 6,000 accounts to its list of customers affected by the tracker-mortgage scandal, a leading credit agency said what must have been on everybody’s mind.
Moody’s pointed out that the move raised questions about the numbers acknowledged by other lenders. “The inclusion of a significant number of additional customers for compensation is credit negative for other banks because it raises questions about whether other lenders affected by the review will revise upwards their provision amounts,” it said.
For starters, KBC Bank Ireland’s profits for the third quarter were hit as it set aside €54.4 million to cover refunds, compensation and other costs relating to the scandal, which dates back the guts of a decade.
The figure is in addition to a €4.4 million initial provision last year to cover tracker-mortgages cases – bringing the total to €58.8 million. KBC previously said that 1,661 customers had been affected, but it added that there may be a further 200-600 cases.
Danske Bank, the last of the lenders to say how many people had been affected, identified 78 customers and set aside €600,000.
The Central Bank of Ireland is meanwhile preparing to start an enforcement investigation into AIB, The Irish Times has learnt. The Central Bank’s deputy governor Ed Sibley said that he expects “all the main banks to be subject to Central Bank enforcement investigations”.
He also said the scandal was the latest chapter in an “unacceptably long list of cultural failings in financial services firms”. Will they ever learn?
Double Irish and single malt
The Republic was back in the dock this week as its role in facilitating tax avoidance by multinationals came under scrutiny in India. Google lost a ¤192 million tax case when a tribunal found that its local and Irish units collaborated in a “clear and conspicuous” attempt to help the Indian operation “skip its liabilities” on business taxes.
The case was said to have sparked concern among several multinationals with offshore intellectual property in the Republic. Then there was the so-called single-malt tax structure, the details of which were revealed in The Irish Times this week.
The scheme is similar to the “double Irish” loophole that the Government closed, to much fanfare, in 2014. The main difference is that, instead of a Caribbean tax haven, the final destination for the tax-free funds is Malta, with which Ireland has a double-taxation agreement, and which has a very low corporate-tax rate.
Despite corporate tax lawyers’ fast fact identification of the new loophole when Michael Noonan shut down the double Irish, the Government is only now moving to deal with the issue.
Minister for Finance Paschal Donohoe said it was “absolutely not” the intention to create tax-planning opportunities for companies that want to reduce their tax bills, and called for co-ordinated corporate-tax reform internationally.
The human cost of all this was touched on by the charity Christian Aid, which said the Republic’s tax system was undermining developing economies’ tax bases. It said the State has been a much more significant player in this than it has cared to admit.
The US House of Representatives meanwhile passed a far-reaching tax-reform package in a big win for President Donald Trump. In a highly anticipated vote, members of Congress backed the Tax Cuts and Jobs Act by 227 to 205.
Among its main changes are a cut in the corporate-tax rate to 20 per cent and a one-off tax to encourage companies to repatriate their offshore profits. The proposals still have to navigate the US Senate, however.
Stellar week for job news
It was another stellar week for employment announcements, with almost 1,000 more jobs coming down the tracks despite the fact that the State is motoring towards full employment.
The online recruiter Indeed, which employs more than 700 people in Ireland, said it was on track to increase this number to 1,000 by 2018. The news came after newly filed accounts showed company income surging 48 per cent, to ¤208 million, last year.
The global online payments firm YapStone is to create 200 jobs as part of a €41 million investment here, the pharmacy chain CarePlus intends to recruit 70 people, and Zevas Communications is looking to add 50.
The US software firm Kaseya plans to create up to 130 jobs in Dublin after a €19 million investment from the State-backed Ireland Strategic Investment Fund. Staying with tech, the consultancy giant IBM is to create 150 highly skilled digital jobs over the next two years at a new Dublin facility.