Irish Government's Tax Take From IFSC Tops EUR1bn

by Jason Gorringe, Tax-News.com, London

03 July 2007

Companies in Ireland's International Financial Services Centre (IFSC) contributed more than EUR1 billion in tax to the Irish government last year, according to Finance Dublin.

During the first year in which IFSC companies paid corporate tax at the full 12.5% rate, EUR1,118.1 was handed over to the Irish Exchequer, 25% higher than in the previous year.

Tax breaks for IFSC companies were abolished by the Irish government after an investigation by the European Union concluded that the scheme constituted state aid, and therefore breached EU competition laws, which attempt to maintain a level playing field across the common market.

The Finance Act 1987 established a special 10% corporation tax rate for certified companies setting up in the IFSC. From the end of 2002, this 10% rate ceased to apply to financial services companies, except for those operations that set up before before July 1998, which continued to avail of the rate until the end of 2005.

However, Finance Dublin said that it is no longer possible to distinguish between tax paid solely on IFSC activities and tax paid on other income by IFSC companies, and thus the figure of EUR1118.1 million doesn't accurately compare with the total Corporate Tax figure for both Stage 1 and Stage 2 IFSC companies of EUR891.5 for 2005.

According to the Irish Revenue Commission, around EUR100 million of the total Corporate Tax figure for 2006 is due to other types of income that would have been taxed at a different rate prior to 2005. Based on this estimate of EUR100 million, a more accurate growth rate would then be in the order of 14%. But the figures exclude the tax yield from international financial services (IFS) companies which never held IFSC licenses, i.e. those firms which established post-2000, and when these are added, the true tax yield figure must be significantly greater than EUR1 billion, Finance Dublin said.

Dublin's IFSC was set up by the Irish Government with EU approval in 1987, and is a leading location for a range of internationally traded financial services, including banking, asset financing, fund management, corporate treasury management, investment management, custody and administration and specialised insurance operations.

More than 430 international operations are approved to trade in the IFSC, while a further 700 managed entities are approved to carry on business under the IFSC programme. The centre is host to half of the world's top 50 banks and to half of the top 20 insurance companies. Merrill Lynch, Sumitomo Bank, ABN Amro, Citibank, AIG, JP Morgan (Chase), Commerzbank, BNP and EMRO are just some of the big-name operations that have chosen to locate in the area.

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