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Friday Newspaper Review - - Irish Business News - - May 17, 2013
By Finfacts Team
May 17, 2013 - 10:44 AM

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The Irish Independent reports that financial outsourcing company Capita plans to double its Irish workforce to 1,600 over the next three years, tapping into demand from Irish banks and global investment funds.

The total includes 265 jobs that Capita needs to fill this year after winning a contract from the National Asset Management Agency (NAMA) to manage loans with a face value of €41bn.

These loans were managed by IBRC before the bank was put into liquidation.

The jobs will be created in Dublin, Maynooth and at a new call centre at a third location outside the capital. Growth is expected to come from a mix of organic growth and takeover deals.

The ambitious plans were announced as the Finance Minister, Michael Noonan, officially opened Capita's new 45,000 square-foot offices at the new Grand Canal Square development in Dublin's docklands.

"The scale and ambition of the company's investment in Ireland, and the announcement of their plans to employ 800 more people over the next three years, is a major vote of confidence in Ireland," Mr Noonan said.

UK-owned Capita has been in Ireland since 2003.

Recruitment

Around 70pc of the current staff are professionally qualified and have specific industry experience.

New recruitment is expected to include qualified- and part-qualified accountants, people with banking experience, surveyors and call centre staff.

Capita has become best known in Ireland for managing billions of euro of loans on behalf of NAMA and other banks.

That part of its business is expected to grow because US funds that are snapping up assets from banks here need local partners to manage the loans day to day.

Capita in Ireland also provides "back-office" support services to the pensions, asset managements and international financial services sectors.

As well as the new Dublin jobs, it has opened a US sales office in New York to win business from the global names that dominate those sectors.

Included in the 800 jobs total are plans to establish a new business process centre, or call centre, that will focus on winning outsourcing contracts from public-sector agencies.

That will be a new departure for Capita here but is the main business of its UK-based parent, which holds a contract to collect the BBC licence fee formerly held by the British Post Office, for example.

The Irish Independent also reports that Google stood accused of using "devious" techniques and "unethical behaviour" to avoid paying tax in Britain, adding fuel to a debate on how companies pay corporation tax that could have huge implications for Ireland.

Google's Northern Europe boss, Matt Brittin, was called back to testify to the British parliament's powerful Public Accounts Committee (PAC) after reports suggested the company employed staff in sales roles in London, even though he had told the committee in November its British staff were not "selling" to UK clients and most sales were made out of Ireland.

Transfer pricing

Mr Brittin said the firm was being investigated by the UK tax authority in relation to transfer pricing of services traded between Google UK Ltd and other Google companies, but added that he believed Google fully complied with UK tax law.

He also denied misleading parliament in November, when Mr Brittin told the PAC: "Nobody (in the UK) is selling." He said all UK sales were conducted by Google Ireland and UK staff were only involved in promotional activity.

That arrangement allows Google to shelter most of its income on UK sales from taxation, since Google Ireland sends most of its turnover to an affiliate in Bermuda.

Such a structure is common among multinationals operating here and makes Ireland a very attractive base for them. If this structure is undermined, it would remove a key selling point for Ireland as a destination for overseas investment.

The committee, however, challenged his November testimony and comments yesterday.

Committee chairwoman Margaret Hodge said Google was not living up to its original motto of "don't be evil".

"You are a company that says you do no evil, and I think that you do do evil in that you use smoke and mirrors to avoid paying tax," she said, adding that the company engaged in "devious, calculated and, in my view, unethical behaviour".

A Reuters report revealed that Google advertised for staff in London to "close" deals and that LinkedIn profiles of dozens of staff claimed they engaged in such work.

Ms Hodge said the PAC had also been approached by whistleblowers who had said they had worked for Google in London, selling advertising.

On Thursday, Mr Brittin said UK staff did offer discounts to customers to encourage them to buy and that the staff were remunerated partly by commission on sales, but he said the fact Google Ireland was the legal counterparty on trades meant his November comments were not inaccurate.

"The UK team are selling, but they are not closing."

Google's auditor, Ernst & Young, was also called to give evidence. John Dixon, head of tax policy at the firm, said there was a grey area between promoting products and concluding sales in Britain, which would, most likely, create a taxable presence for a company in London.

He declined to say whether Google's arrangement was consistent with not having a tax presence in the UK.

Corporate tax avoidance has become a major issue in Britain, where there are concerns over rising government debt and accusations that the UK tax authority has adopted a light-touch to taxing big businesses.

From 2006 to 2011, Google generated $18bn (€13.5bn) in revenues from the UK, according to statutory filings, and paid just $16m in taxes.

The Irish Times reports that a company of developer Johnny Ronan has won its High Court case aimed at ensuring the annual rent for the Medical Council’s new headquarters in Dublin does not fall below €820,000, although the market rent for the property is about €374,100.

Mr Justice Iarflaith O’Neill ruled yesterday the upwards- only rent review clause in the council’s 20-year lease for its Kingram House headquarters off Fitzwilliam Square is not affected by a law banning upward-only rent reviews for business premises.

The 20-year lease dates from January 2013 but provision for it was part of a complex series of transactions agreed in 2008 between Tanat Ltd and the council concerning the premises. The council had argued it was entitled to the benefit of section 132 of the Land and Conveyancing Law Reform Act 2009, the law banning “upward-only” rent review clauses in leases for business premises which came into effect in February 2010.

The judge said section 132 was not intended to have retrospective effect and accepting the council’s arguments would mean it would be insulated from losses it would have experienced, following the collapse of the property market, under the agreements between it and Tanat.

Those agreements had valued Kingram House at about €20 million when valuations based on market rents in December 2012, with upward and downward review clauses, were about €5 million.

Upholding the council’s arguments would interfere in a very material way in the complex set of contractual arrangements made between the sides aimed at the council acquiring Kingram House and amount to “impermissible retrospective interference” with existing and vested property rights, the judge ruled.

A 2008 agreement between Tanat and the council concerning options for the property included a put-and-call option agreement for a 20-year lease dating from January 2013.

Section 132 states that the ban on upwards-only rent reviews does not apply to agreements for property leases for business purposes entered into before the section came into effect in February 2010.

Mr Justice O’Neill ruled that the put option in the 2008 Kingram House agreement amounted to an agreement for such a lease and therefore section 132 did not apply. Earlier, he noted that Kingram House was the only asset of Tanat, whose shareholders are Mr Ronan and Peter Conlan.

Tanat bought Kingram House in 1989 for €883,000 and carried out significant redevelopment costing €2.5 million and retaining the original Georgian building to the front, which had been a school attended by Oscar Wilde.

The council was in 2006 seeking a new headquarters and wanted to buy Kingram House but Tanat was unwilling to sell, mainly because that would involve a capital gains tax liability of €2.7 million. Distribution of sale profits to the shareholders would also mean a substantial income tax liability for them and Tanat also preferred to hold on to the building and let it on a long lease.

An alternative proposal to sell the shares in Tanat instead of the building had significant tax advantages for both sides as the Tanat shareholders would avoid income tax liabilities, while the council also stood to make €3.45 million tax savings. After it emerged that the council would have no power until a new law came into effect in July 2008 to acquire the Tanat shareholding, the sides in March 2008 entered into an agreement.

The Irish Times also reports that Belgian bank KBC expects to record loan loss impairment charges of €300 million to €400 million in 2013, group chief executive Johan Thijs said yesterday on the publication of its first-quarter results.

The bank’s Irish subsidiary booked a loan loss impairment charge of €99 million in the quarter. This was lower than the €195 million recorded in the same quarter of 2012 but up on the €87 million impairment in the previous quarter (Q4 2012).

KBC Bank Ireland made a loss of €77 million in the three-month period due to the high loan loss provisioning. This accounted for the bulk of the €87 million loss made by KBC’s international markets business unit. Hungary and Bulgaria were also loss-making but it made a profit of €17 million in Slovakia. Belgium was most profitable, recording a surplus in the period of €385 million.

KBC posted a group net profit of €520 million for the first quarter of 2013, up from €380 million a year earlier.

The Irish Examiner reports that there was an 11% increase in the seasonally adjusted trade surplus for March to €3.489bn, although the headline figure masks underlying trends that could cause future problems.

There was a seasonally adjusted increase in exports of €272m to €7.287bn in March compared with the previous month, although there was a €680m decrease compared with the same period last year.

The ‘pharma patent cliff’ was one of the reasons for the drop-off in exports over the past year.

“Within the data we see that of the nine principal export categories, only two — food and beverages and tobacco — recorded positive year-on-year growth in the first quarter. Particularly weak performances were recorded in chemicals and related products (-11.4% y/y; driven by a 16.7% fall in organic chemicals and a 13.6% decline in medical and pharmaceutical products) and mineral fuels (-70.2% y/y),” said Investec economist Emmet Gaffney.

Over half (57%) of all exports go to the EU and 26% to the US. The value of imports fell by €858m to €4.129bn between February and March. The biggest decrease in imports was in the transport equipment sector, including aircraft. There was also a big decrease in the import of medical and pharma products.

Two thirds of imports came from the EU, 10% from the US and 6% from China. However, the EU remains mired in recession. According to figures released on Wednesday, the eurozone has posted six consecutive quarters of economic contraction.

“We must use the EU presidency to move rapidly on a stimulus package to get growth back into industry and consumer markets,” said president of the Irish Exporters Association (IEA), John Whelan. “We must also look to cutting the Irish cost base on an urgent basis to assist export competitiveness utility costs; waste removal costs, general services cost are significantly higher than in the UK”

“Services exports are not covered by today’s CSO release. These grew by 8% in the first quarter, and will be the main driver of export growth again this year. However, manufacturing export companies created twice the number of added jobs in the economy, as do services export companies, and hence the urgent need for added support for the manufacturing sector,” he added.

Merrion Stockbroker economist Alan McQuiad is forecasting a 4% volume increase in the exports of goods and services this year, “but with the risks to the downside, especially as the sluggish external demand conditions which acted as a drag on the performance of merchandise exports last year are likely to persist in 2013.”

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