IFSC's future safe despite tax threat
Published 14/12/2010 | 05:00
Ireland's future as a magnet for international investment funds is secure even if its eurozone partners demand a shake-up of its corporate tax regime to boost its finances and curb risk of default on Irish sovereign bonds.
Fund managers, custodians and administrators who have flocked to Ireland to exploit its 12.5pc corporation tax are more likely to swallow a rate hike than give up the swift route to market and the 'hands-off' approach to regulation that have become the hallmarks of an Irish domicile.
"We are not looking at any other jurisdictions. We have a number of funds that we are due to launch and we are not considering changing at all," said Christopher Day, director of long-short fund platform Merchant Capital. Ireland has chipped away for several years at the dominance of longer-established fund hubs like Luxembourg.
Funds domiciled in Ireland had $1.04trn (€0.77trn) in net assets at end-June, up 11.6pc year on year, compared with the growth seen in Luxembourg's $2.2trn industry over the same period, data from Thomson Reuters Lipper showed.
Ireland is also home to a large slice of the global hedge funds custody and administration business, with about 42pc of the world's hedge funds assets, according to data from the European Fund and Asset Management Association.
The once-booming Celtic Tiger economy had to call on the EU and the IMF last month for an €85bn bailout to fix the country's banks and huge budget deficit.
That has sparked doubts over whether Ireland can protect its envied corporate tax rate -- one of Europe's lowest -- as it fights to restore confidence in its ability to repay its debts.
There has been talk of an exodus of businesses to Luxembourg or new centres like Malta but the costs of quitting Ireland could far outweigh the benefits, managers said.
"You can't just call Luxembourg and say: 'We're dumping Dublin, can we have an umbrella set up for this time next week?' The response would be 'no'," said Michael Warren, investment director at Thames River, a unit of £108bn (€128bn) fund firm F&C Asset Management.
"There's a big local workforce, which is now very experienced in what they do. Also, you can get your funds to market quite speedily and efficiently. That might be viewed by some as worth a small rise in tax rates," he said.
Former Taoiseach John Bruton, who set corporation tax at 12.5pc in 1997, said tax receipts had exceeded forecasts in the first 10 months of 2010 by €300m.
"Clearly it would make no sense (to increase the tax), at a time when they want us to repay what we have borrowed fully and on time," said Mr Bruton, now chairman of IFSC Ireland.