Dáil Éireann debate -
Tuesday, 19 Feb 1991

Vol. 405 No. 3

Ceisteanna — Questions. Oral Answers. - Financial Services Centre Companies.

Michael Noonan

Question:

23 Mr. Noonan (Limerick East) asked the Minister for Finance if his attention has been drawn to the fact that certain companies operating under the rules which apply to the International Financial Services Centre are merely brass plate companies whose primary purpose is tax avoidance; if his attention has further been drawn to the damage the activities of these companies will do to the reputation of the financial services industry in Ireland; if he has satisfied himself that he has allocated adequate resources within his Department to police activities of International Financial Services Centre companies; and if he will make a statement on the matter.

Mr. A. Reynolds

I would like to assure the Deputy that there is no question of so-called "brass plate" operation being allowed in the International Financial Services Centre for tax avoidance purposes. Companies with no real presence in the location, whose only presence is a post-box or address, would not be welcome in Dublin and indeed would be counterproductive in the longer-term. The emphasis is on having significant functional operations located in the centre.

The high reputation and standards of companies operating in the centre is our strongest selling-point internationally in promoting the centre in the highly-competitive financial markets of the world, and I would reject most emphatically any suggestion that this reputation is being eroded by the presence in the International Financial Services Centre of unsuitable companies.

New applicants for the centre are very carefully screened by the Industrial Development Authority and also by the regulatory bodies concerned, among them my own Department and the Central Bank.

We have been fortunate in attracting some of the leading international companies in banking, insurance and other financial services areas to the centre to join our own top native companies who are present there. The centre is a highquality location and it would be totally unfair that any negative reflection should be cast upon its operation.

Moreover, every company proposing to enter the centre has to meet stringent employment criteria — an added guarantee of real presence and the major aim of the centre overall, which is to provide high-quality employment for highlyqualified specialists in financial services.

The centre is moreover overseen by a high-level body of officials and representatives of the financial services industry which meets regularly and maintains careful surveillance over the centre.

I am satisfied that all the arrangements I have mentioned, including those in my Department, for dealing with the centre are adequate to the task but the Deputy can rest assured that these are kept under review and will be added to as necessary to ensure a continuing high standard of services.

Mr. Noonan

(Limerick East): With respect may I suggest to the Minister that he is out of touch with what is happening? Is the Minister aware that his Department have effectively lost control of the issuing of licences in so far as operating licences are issued to principal certificate holders in the first instance but they are authorised to form special purpose companies which have exactly the same rights as the licence holder? While the Minister is correct in saying that the most stringent regulations apply to the issue of licences in the first instance, the secondary issuing of licences to special purpose companies is not effectively monitored by his Department. The three officials who have responsibility for policing the responsibility of the International Financial Services Centre are not in a position to monitor these special purpose companies which are now involved in widespread tax avoidance activities and are “brass plate” operations bringing the financial services industry here into disrepute.

Mr. A. Reynolds

If the Deputy has any specific information, which I do not have, I would be glad to have it and I will have the matter investigated. The point the Deputy is making is in relation to special purpose companies which are involved in funding operations. Funds, whose resources are being adminmistered by fund or investment management companies, and captive assurance and reinsurance companies, are special types of companies that are operating in the International Financial Services Centre. These companies cannot be judged in isolation but only in the context of their sponsoring company, in which the required employment occurs. Even in these circumstances there is no question of them avoiding Irish tax law, although the commercial attraction of these structures hinges in large measure on tax foregone in foreign jurisdictions. This is not done in any covert way and comes well within the terms of reference of effective international planning.

If the Deputy has any further evidence, let him present it to me. However, I would like to give him this assurance, I have available to me the authority to revoke any licence which we find is not conforming with the conditions attached to the licence. I will be glad to do that to preserve the good name of the centre, but I have to reject some of the Deputy's innuendo.

Mr. Noonan

(Limerick East): I would like to thank the Minister for his reply.

An Ceann Comhairle

I have to say to the Deputy, and the Minister, that the time available to us for dealing with Priority Questions is quite exhausted.

Mr. Noonan

(Limerick East): I will be very brief, a Cheann Comhairle, it is a very important matter. Is the Minister aware that the German tax authorities have recently signalled hostility to financial investments in Ireland and have instructed their local inspectors of taxes to examine carefully all such investments because of the loss of revenue to the German Exchequer? Is the Minister also aware that the Swedish authorities have indicated that they wish to renegotiate the terms of the double taxation agreement between Sweden and Ireland, to limit Swedish tax revenue losses and that Denmark has indicated that they will put in a similar request?

Mr. A. Reynolds

I am aware that certain companies, for their own commercial reasons, continuously make complaints about the operations of others. I am also aware that references have been made to the renegotiation of double taxation agreements. Double taxation agreements govern the application and payment of tax in this jurisdiction and in the German jurisdiction. These agreements can only be restructured not in an arbitrary fashion but with the consent of both parties. We are not aware of any serious developments at this stage but if such serious developments should arise in relation to any of the companies there, the House and the Deputy can be assured that the appropriate action will be taken by me and the Government.

Mr. Noonan

(Limerick East): May I ask two short supplementaries?

An Ceann Comhairle

Sorry, let us now come to deal with other questions.

Mr. Noonan

(Limerick East): They are very short.

An Ceann Comhairle

I am very sorry Deputy. I have given the Deputy a lot of latitude as the clock will indicate.

Mr. Noonan

(Limerick East): They are very short.

An Ceann Comhairle

Very well then Deputy.

Mr. Noonan

(Limerick East): Will the Minister assure the House that these tax avoidance schemes, which result in extra revenue on corporate taxation to the Exchequer, will not prevent the Minister from acting in the interests of the reputation of the International Financial Services Centre?

Mr. A. Reynolds

The reputation and good name of the International Financial Services Centre will be maintained by me but I do not want the Deputy to confuse that with the financial engineering that goes on and which is effectively recognised as international tax planning. That is a fact of life in today's world, and the Deputy knows that as well as I do.

An Ceann Comhairle

Question No. 24, please.