Monday 23 April 2018

Ireland is top Eurozone jurisdiction for secretive SPVs

Luxembourg lags behind the €391bn sector in this country
Luxembourg lags behind the €391bn sector in this country

John O'Donnell

Ireland remains the Eurozone's largest centre for financial special purpose vehicles, data from the European Central Bank (ECB) showed yesterday, placing it far ahead of closest rival Luxembourg.

Such vehicles, many of which are shell companies set up to borrow or invest, had assets, chiefly loans and debt, of €391bn - bigger even than the Irish economy.

The data comes amid a debate in Ireland about its hosting of such conduits, pitting critics, who see a risk to the country's reputation, against those who want to keep them to help attract business from London after Brexit. The ECB data makes the sector in Ireland, as it stood at the end of June, two-thirds larger than in Luxembourg and bigger even than in Italy, one of Europe's largest economies.

Special purpose vehicles (SPVs) are part of Ireland's offering to financial firms looking to move from London ahead of Britain's departure from the EU.

Ireland already accounts for roughly a fifth of such activity in the Eurozone and its dominance of the sector has held steady compared with earlier such surveys.

The growth in the number of such companies has prompted criticism from Irish politicians, however, who fear they could damage the reputation of the country, which was nearly bankrupted by its own financial crash. Ireland hosted numerous such vehicles before the crash that were linked to banks hit in the turmoil.

Much of the debate centres on one common Irish structure, known as a Section 110 company, which cuts tax close to zero on financial deals by creating exemptions from withholding tax, otherwise automatically deducted from income.

The companies, which typically have no full-time staff, have been used perfectly legally by US property investors, aircraft leasing firms, European banks and Russian energy groups.

Registered as ordinary companies, some vehicles hold loans on, say, US property. They counterbalance interest payments received for those loans with the cost of loan notes they have taken to invest, arriving at tax of close to zero. Restrictions apply to Irish property.

"Dublin has been quite aggressive in promoting itself," said Constantin Gurdgiev, a professor of finance at the Middlebury Institute of International Studies in California. "Ireland is a platform for tax optimisation, but also for doing business. It has access to the European market."

Others are critical of the Government for allowing the structures and the Central Bank has increased surveillance of the sector. (Reuters)

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business