One could be forgiven for thinking that Ireland is only about a 12.5% or lower rate of corporation tax. The amount of publicity that our 12.5% rate of corporation tax has received over the past 24 months, from the Financial Times to the Wall Street Journal, from Le Monde to Der Spiegel, could easily make you believe that we have nothing more to offer than the lowest corporation tax rate in Europe.
It is true that for over half a century many companies have found Ireland a compelling location to springboard into the rest of Europe, the Middle East and Africa. Our legal system, language, time zone and highly educated workforce have always made the decision to invest in Ireland an easy one.
It is also true that there is no such thing as bad press, and to the world’s media, we thank you for your relentless (free) advertising campaign that Ireland offers the most competitive tax rate in Europe.
Possibly, one of the lesser publicised, but equally impressive, foreign investment activities in Ireland is our funds industry. From humble beginnings in the early eighties, the Irish funds industry has grown to be one of the biggest in Europe and one of the most respected in the world. Over 12,000 people and growing are employed in this industry, with over US$2.4 trillion (€1.9 trillion) assets under management serviced from Ireland. So why has Ireland become the world-class leader for global funds?
The People
Having a pool of highly educated young people with the requisite skills, qualifications and ability has no doubt helped Ireland to attract and retain fund management activity. Ireland has one of the highest per capita third level education participations in Europe. For such a small country it is outstanding that three of our universities are ranked in the world’s top 300 universities, with Trinity College Dublin ranked 65th in the 2011/2012 QS world university rankings. The professions are equally well represented with multinational and domestic administrators, legal, tax and accountancy firms helping to forge ways to achieve the ultimate and make things happen in an effortless and seamless manner.
The Regulatory Environment
Without a doubt the regulatory environment is a key ingredient in the attractiveness of a location for investment vehicles. A fast, efficient, knowledgeable and flexible attitude fertilised the growth of the funds industry in Ireland. A regulator must command respect, but must also display confidence in decisions and not shun new ideas or strategies. The Central Bank of Ireland has never been wanting in any of these characteristics. It has the confidence to fast track investment structures for approved promoters to avoid costly delays in getting to market.
Benign Tax System
Enabling our regulated funds to provide a tax free environment in which their investments can grow and allowing non-residents a return free of Irish tax leakage provides an environment on a par with any tax haven jurisdiction.
Ireland has meticulously and skilfully negotiated full tax treaties with 63 countries and continues to grow its network. Treaties with Singapore, China and Hong Kong could open up a world of possibilities connecting the east to the west. Potential access to such a valuable tax treaty network must make Ireland an interesting location for many private equity alternative investment funds.
The marriage of a regulated fund and a section 110 company (securitisation vehicle) could provide a potent weapon in the armoury of a private equity investor fund. Such a combination could open up the treaty network to our tax exempt funds to provide exciting pathways to China or anywhere else for that matter.
Our securitisation regime has featured in many structured finance deals, from asset-backed securities to collateralised debt offerings. The section 110 company offers a quick unregulated vehicle that can partner with most international structures covering financial assets, precious metals (synthetic or physical), plant and machinery, to include leasing and insurance contracts or life settlements. Our flexible debt regime for a section 110 company can help reduce local tax on investment returns.
With careful planning, our holding company rules can facilitate tax free disposals of participations and maximise foreign dividend repatriation.
Our tax laws facilitate the management of foreign domiciled funds from our shores without bringing the foreign fund assets into the Irish tax net.
Moreover, our tax code was recently amended to incorporate the principles of Sharia law into our financing concepts, further enhancing Ireland’s ability to facilitate global finance products and structures.
Legal Environment
While Ireland is a common law jurisdiction, as a member of the EU and a signatory to its treaties, civil law too can play a role. That makes Ireland interesting from a legal perspective. Recently we amended our law to cater for the redomiciliation of foreign companies into Ireland where such companies are to be regulated companies in Ireland. This will facilitate, for example, a Cayman corporate fund migrating to Ireland without triggering a sale of its underlying assets. Such a facility may prove indispensable in future periods if tighter regulation or restrictions are imposed on Cayman domiciled funds.
FX Management
While the currency of Ireland is the euro, in certain circumstances our accounting and tax laws allow for other currencies to be the functional currency and for the computation of profits in that currency to avoid un-hedged exchange movements.
Europe
An essential ingredient into the mix is the ability to passport services throughout Europe and other countries. The ability to be regulated in one country and to be able to attract investors from anywhere in the EU is a compelling characteristic. It is even more opportune where third country regulatory bodies authorise EU regulated funds for their local markets. Hong Kong, Taiwan and Chile are cases in point.
Obviously these “freedoms” are only of real value to the extent that other suppliers cannot market as easy in this market. Commonality of regulation is required as a result of recent financial turmoil. The proposed Alternative Investment Fund Managers Directive may well make Ireland an attractive location to domicile such fund managers in the future.
Outlook
The funds industry is one of Ireland’s great successes. It is forecast that by the end of 2011 the funds industry will have created 1,143 new jobs in Ireland since 2009. Ireland topped the table with inflows into Irish domiciled UCITS in the first half of 2011 attracting over US$55.5 billion (€41 billion) in net assets during that period, significantly ahead of its nearest rival, Luxembourg.
In addition to retail investment funds such as UCITS, Ireland is also a leading centre for the administration of hedge funds and other alternative investment vehicles. There is a significant piece of legislation being drafted by the EU on the regulation of alternative investment fund managers which is likely to lead to a number of funds domiciled in offshore jurisdictions such as the Cayman Islands relocating to the EU, and Ireland is well positioned to accommodate these funds.
This article was originally published in the American Lawyer (October 2011).
Contributed by Martin Phelan.
