One of the critical elements of our policy for attracting FS companies to Ireland is to ensure that we have certainty and stability in our tax policy.
Financial Services is everywhere these days. Whether you pick up the newspaper, read online reports or watch the news, there is plenty of commentary and analysis on Brexit and the impact it will have in Ireland in the financial services sector. There is the constant flow of information updating you on the FS companies and operations that have confirmed they will locate new or expanded operations here, such as JP Morgan, Bank of America, Barclays, Citi, TD Bank, Beazley, Chaucer, Standard Life, Legal & General and Aviva. There are also companies that still have to decide/ announce their chosen location. The coming months are key to a number of the decisions that need to be made on where those financial institutions will locate their operations that must move in order to be Brexit ready. The old adage of “Location, Location, Location” equally applies to buying a property as it does in making the Brexit decision.
The other stories that hit the news and for which there is plenty of commentary over the last twelve months, is the spotlight on Irish funds and securitisation (S110) companies, particularly with respect to those funds and S110s investing in Irish property and property related assets. Since September 2016, new tax rules were introduced on in respect of S110s holding Irish real estate related assets such that only interest on profit participating notes that are arm’s length, or are paid to certain investors such as Irish corporates or EU investors who are fully taxable on such interest and carry on genuine business activities, will be deductible. In the case of Irish funds investing in Irish related real estate assets, (called Irish Real Estate Funds “IREFS”) from I January 2017 there is a 20% tax applied to returns such as dividend/distribution payments and redemptions where the fund or subfund has more than 25% of its investments in such Irish real estate assets. Again, there are exemptions available to certain investors such as EU individuals, funds and pension funds, providing they meet certain conditions including being fully taxable in their home country on the returns from the IREF.
Certainty and stability
One of the critical elements of our policy for attracting FS companies to Ireland is to ensure that we have certainty and stability in our tax policy. The changes brought in last year in the funds and S110 areas did raise questions with investors and FS companies as to whether this was a growing trend for Ireland to change the rules mid cycle. While there was a discreet focus on reclaiming Irelands taxing rights on Irish real estate, it would be damaging to Ireland’s international perception if we were to expand the IREF rules to beyond Irish real estate, or to rethink the existing gross roll up funds tax framework. Likewise to make wholesale changes to the S110 regime would equally cause significant concern.
Open for Business
At a crucial time when we are clearly open for business and successfully pitching our tent in competition with the likes of Frankfurt, Luxembourg and Paris in the Brexit race, we do not want to pull the pegs away by amending tax legislation and practice in a negative way. Such changes result in uncertainty and reputational damage to Irelands positioning and status. As highlighted above, many FS companies have made long-term commitments to Ireland as a result of reorganising their operations post Brexit, or by choosing Ireland as a favourable location for new operations. There are changes that could be made to enhance Ireland as a location, such as amending the short term business traveller rules to ensure that business travellers to Ireland (particularly to newly enhanced or start up Brexit operations here) do not face nasty surprises on finding they have payroll tax obligations here.
While the financial services industry has a list of changes that it would like to make to our tax law to make it more business friendly, such as enhancements to SARP, legislation for carried interest and deferred compensation for example, there is a reticent acceptance that the landscape has changed and the Finance Bill each year will not contain a list of measures that the industry would like introducedparticularly in light of the limited fiscal space available for tax measures this year. However, with that grumbling acceptance, the quid pro quo must be “if you are not going to do something nice, then don’t do it at all”.
While there are a small number of technical changes needed to tidy up some of the IREF and S110 rules for unintended consequences from the last years Finance Act, it would be important not to make any changes that could damage the perception of Ireland in the international markets where investor confidence is key.