State urged to become more 'capital friendly'

Significant tax changes to make the Republic more "capital friendly" are needed to secure the future of the International Financial Services Centre (IFSC), according to a confidential report commissioned by IDA Ireland.

The report was presented last week to Government and industry figures were briefed on the findings, which followed a review of the industry by consultants Deloitte.

It has identified five areas in which there are "excellent opportunities to grow and develop the sector". They include developing the IFSC as a centre from which banks and companies raise debt and finance large deals.

There is also an opportunity for the Republic to become a hub linking offshore back offices that administer financial products with the front offices that sell them in different markets, according to the review.

The consultants also believe that the State's existing position as a major centre for administering investment funds can be developed further.

They also conclude that asset management, which is a relative small sector at present, could be grown by targeting hedge managers and other niche players.

The final opportunity identified is to make the Republic a centre for the management of mass risk and retail insurance. Dublin is already a leading centre for re-insurance and large risk insurance. Deloitte believes this can now be expanded to include things such as managing household insurance on a Europe-wide basis for large insurance companies.

But in order to capitalise on these opportunities a number of changes to current tax laws are needed along with other measures.

The bulk of the tax changes relate to the encouragement of the debt and securitisation business. They include changes to the withholding tax and stamp duty regimes and the rules covering the deductability of interest paid outside of the State.

The report also calls for clarity around the remittance of tax and the tax rate for start-up operations. It says they are necessary to encourage asset management and hedge funds to move to the Republic.

Capital taxes and subscription of share capital should also be eliminated in order to make the State a more attractive location for retail insurance products, according to Deloitte.

Although the tax changes are likely to prove the most controversial aspect of the review, they are only part of the package.

Deloitte also says that there is a shortage of third-level graduates with mathematical and quantitative skills. It calls for the priming of the education system to address this.

The report recommends that third-level institutions here should be tied into internationally renowned programmes in areas such as computational finance. The Government should also consider funding specific research programmes related to financial services.

It also argues that sufficient resources must be made available to the regulator in order to ensure effective and responsive regulation. This will facilitate "aggressive" targets for the approval of new funds that want to locate here and allow "speedy legislative developments in response to industry demand".

There also needs to be a shift from consultation to proactive management in the approach adopted by Government departments and agencies.

Finally, the report calls for the renewed promotion of the Republic as an international financial centre.

The report is now being considered by the IFSC Clearing House Group, which advises the Department of the Taoiseach on the development of the IFSC. It comprises representatives from industry and relevant Government departments.