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News : Irish Last Updated: Apr 17, 2013 - 11:31 AM


Wednesday Newspaper Review - Irish Business News and International Stories - - April 17, 2013
By Finfacts Team
Apr 17, 2013 - 7:23 AM

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The Irish Independent reports that controversial guidelines on what people who get a state-approved debt deal can live on have been cleared to be launched this week.

The Cabinet was shown the controversial guidelines at its weekly meeting yesterday, but there is no requirement for the measures to be approved by ministers.

The guidelines are set to remain largely unchanged from those revealed previously in the Irish Independent when they are issued tomorrow.

No figures have changed – meaning a family with two adults and a child in primary and one in secondary will be told to live on €20 a day if they are having debts written off under the new personal insolvency rules. The restrictions are to be issued by the new Insolvency Service as it prepares to offer new deals to consumers.

The highly controversial childcare aspect of the guidelines has not been altered, despite sustained criticism of the measure. A second earner will still be told to give up work if what they are paid does not cover the cost of childcare.

But in a minor adjustment, the final version of the guidelines will state that childcare arrangements, that are loss-making, could be kept in place if they were short term and an economic rationale can be advanced.

This would mean that a family will be allowed to keep the child in a creche if the child is within a year of attending primary school, or the second earner has a prospect of promotion.

This is in line with comments by Taoiseach Enda Kenny in the Dail last month, when he said that those seeking a deal on mortgages and other debts would not necessarily have to quit work if childcare costs were higher than pay.

That came after Transport Minister Leo Varadkar sparked controversy when he suggested women might have to give up their jobs if their childcare costs were more than they earned.

"I know one or two women who probably don't make very much money at all from working, but they do it to keep their position on the career ladder," he said. "But if you can't pay your mortgage as a result, or buy your groceries as a result, then that is something that needs to be taken into account in any insolvency arrangement."

An attempt has been made to soften the blow by stressing throughout the 55-page document that the details are guidelines only, and not mandatory.

But the guidelines will still come down against people having health insurance. Health insurance is seen as a luxury for those who enter a five to seven-year arrangement to pay off what they can, and get the rest written off.

But there will be some flexibility allowing those with serious health issues to retain a low-cost health plan.

Since the details of the new guidelines were first revealed in this newspaper in March, advocacy groups for those in mortgage arrears and opposition politicians have criticised them as overly harsh.

'Earned'

But it is understood that Justice Minister Alan Shatter and head of the new Insolvency Service, Lorcan O'Connor, take the view that the rules will have to be harsh to ensure that those getting mortgage and other debt forgiveness is "earned".

Legislation putting the new service into force was only enacted at the end of last year. It has just moved into its offices near the Phoenix Park in Dublin and has had to draw up detailed regulations for personal insolvency practitioners (PIPs), who will negotiate with banks on behalf of indebted consumers.

A website and a helpline will also be issued with the reasonable standard of living guidelines and the new regulations for PIPs.

The Irish Independent also reports that businessman Denis O'Brien is fighting a Revenue Commissioners' bid to overturn a decision that he was not liable to pay €57m in tax in Ireland around the same time he started living in Portugal.

A Revenue Appeals Commissioner decided that Mr O'Brien's permanent home in 2000/2001 was Quinta de Lago, Almancil, Portugal, and not Ireland.

This meant he was not liable for capital gains tax (CGT) of €56.8m on the €285m he received for 5.7 million shares he owned in Esat Digifone when it was sold to British Telecom in 2000.

The Inspector of Taxes was unhappy with that decision and the Appeals Commissioner agreed to refer the matter to the High Court to determine whether he was wrong in law.

Yesterday, Ms Justice Mary Laffoy reserved her decision.

The court heard the case arose because of the purchase in 2000 by Mr O'Brien of a house on Raglan Road, in Ballsbridge, one of a number of Dublin 2/4 investment properties he had built up since the early 1990s.

It is a seven-bedroom detached period house which he bought through a company he controlled, Partenay Ltd.

The Revenue said that even though it accepted Mr O'Brien moved with his family to Portugal in February 2000, he also had a permanent and habitable home available to him at that time in Raglan Road.

In view of this, the Revenue said, the Appeals Commissioner should then have gone on to decide whether his personal and economic interests were closer to Ireland than to Portugal, thereby making him tax-liable here in accordance with the Ireland/Portugal Double Taxation Convention

The court heard that Mr O'Brien employed a number of architectural and building experts to show that the property was not habitable at the time and needed extensive renovation, which was not completed until 2002. A builder and an engineer said parts of the house were dangerous.

Mr O'Brien argued that all the family's personal possessions were relocated to Portugal after they left their former home in Wellington Road in February 2000. That property was immediately rented out and no longer available to the family.

The Appeals Commissioner, Ronan Kelly, found that Mr O'Brien and his family did not reside at the Raglan Road property prior to the tax year 2000/01 and he had never put his mark or stamp on the property, including by keeping his personal and sentimental possessions there. It was not, therefore, his permanent home.

Anthony Collins SC, for the Inspector of Taxes, said Mr O'Brien bought the house from restaurateur and property developer Peter White, and his wife Laetitia, in May 2000.

Properties

Refurbishment works began in January 2001. From February 2002, the O'Brien family used it during visits to Ireland until it was vacated by them in March 2003, the Appeals Commissioner was told.

In his evidence to the Commissioner's hearing in July 2003, Mr O'Brien said he bought the Raglan Road property primarily as an investment but with the option to use it as a family home if the family decided to return to Ireland.

Mrs O'Brien told the hearing her home was in Portugal and that two of her children were going to school there.

The Commissioner also heard from the previous owners of Raglan Road, the Whites, who disputed evidence given by Mr O'Brien's architectural and engineering experts that the house was not in a good condition.

Mr Collins argued that the Appeals Commissioner had used the wrong test under the Double Taxation Convention in which he found Raglan Road was not the permanent home. The requirement was that a "permanent home (be) available" to a person, not that it be availed of, counsel said.

Dermot Gleeson SC, for Mr O'Brien, said the commissioner had made a "perfectly sane, sensible and rational determination" in accordance with legal precedent. Raglan Road never started to become the home of Denis O'Brien and never became his home, he said.

The Irish Times reports that Minister for Public Expenditure and Reform Brendan Howlin was adamant last night that savings of €300 million in the public pay bill would have to be found this year despite the collapse of the Croke Park II deal.

His comments came as unions warned of industrial action in the event of the Government pressing ahead with pay cuts on a unilateral basis.

The Ictu executive committee is due to meet today to discuss its response to the rejection of the Croke Park II proposals.

The rejection of the deal by a significant majority presents a major headache for the Coalition, and in particular for the Labour.

Mr Howlin spoke to EU-IMF troika representatives on the phone last night to explain the significance of the vote and will meet them next week for more detailed discussions.

The rejection of the deal by union members in effect led to the collapse of the Government’s strategy to secure the savings by agreement with staff. However, earlier the Minister emphasised the Government’s budgetary arithmetic had not changed as a result of the rejection of the proposed deal and that savings in the public service pay bill would have to be found to meet targets.

Mr Howlin said some time for reflection on the outcome would be required before the Government made a decision on how to proceed.

The Cabinet will consider the issue at its weekly meeting next Tuesday but it is not expected that a decision on how to proceed will be made at that stage.

The options facing Mr Howlin are to impose a 7 per cent pay cut across the public service over the next three years to generate €1 billion in savings sought by the Government or to find a way of tweaking the agreement to provide for smaller pay cuts allied to flexibility in working arrangements.

However, the timescale for any new re-engagement by the Government with the unions would be very short.

Any revised deal would have to be put out again to ballot and, to meet the Government deadline of July for savings to come on stream, any new talks would have to be completed by the end of May or so.

Tweaking the existing proposals to encourage unions such as Siptu or the Irish National Teachers’ Organisation to adopt revised proposals would probably mean deeper cuts elsewhere and there would be no guarantee they would not be rejected a second time.

Any decision to impose pay cuts would require legislation and that would create difficulties for Labour TDs. Trade unions have also warned of industrial action in the event of the Government pressing ahead with pay cuts unilaterally.

The Labour parliamentary party is expected to discuss the issue at its weekly meeting this evening. The chairman of the parliamentary party, Jack Wall, told The Irish Times last night that all sides should be given some time to reflect on what should happen next. “The deal has been soundly rejected and that has to be acknowledged.

“There is a need for cool heads to look at the situation and take the time necessary to reflect on the options,” he said.

Tánaiste Eamon Gilmore said: “There is a reality that we have €300 million of savings to make this year. Those savings were dependent on agreement being reached and there’s a billion that has to be made over the period up to 2015 that the agreement was to address.

“The result of the ballot doesn’t change the reality that savings have to be made.”

Earlier, Siptu president Jack O’Connor warned that any move by the Government to legislate for pay cuts for public services staff would “inevitably precipitate a major confrontation”.

He said Siptu would fight if it needed to and had the financial resources to undertake industrial action.

The Irish Times also reports that the highly profitable Trinity Capital Hotel on Dublin’s Pearse Street is to be offered for sale on the international market following a sustained pick up in the hotel business generally in the city.

Paul Collins of CBRE Hotels is guiding between €30 million and €35 million for the four-star hotel, which is understood to have made profits of between €2.5 and €3 million last year.

The hotel is owned by brothers Liam and Des O’Dwyer whose hotel and pub group, Toji Holdings, has had net debts of around €116 million transferred to Nama.

Sharp recovery

A larger grouping of pubs owned by the brothers was broken up in 2009 when a bank receiver was appointed to three of them, Café en Seine, The George and Howl at the Moon.

The 195-bedroom Trinity Capital Hotel opposite Trinity College is almost certain to be acquired by overseas interests just like the three other city hotels sold in past 14 months.

The 138-bedroom Morrison Hotel on Ormond Quay was sold to Russia’s richest woman, Elena Baturina, for €22 million; the 501-bedroom Burlington was acquired by US private equity giant Blackstone for €67 million, while the 185-bedroom Marker Hotel and 84 apartments went to Swiss-owned Midwest Holdings and Brehon Capital for €30 million.

The strong overseas interest in the city hotel market has been triggered by a sharp recovery in business – occupancy rates are averaging between 75 and 85 per cent – and increased revenues per room over the past 30 months.

Unfortunately, the resurgence has been of little benefit to many provincial hotels or others developed alongside golf clubs during the property boom. Even with the improved trading climate in Dublin city, several more hotels are due to be offered for sale in the coming months to help reduce excessive borrowings by owners enlarging their property portfolios during the bubble.

Fire station

One of the strong selling points for the Trinity Capital Hotel is that a new owner will have the freedom to relaunch the business as part of a top international brand. The Burlington Hotel, for example, is to trade as DoubleTree, part of the Hilton World- wide group, when it has been upgraded at a cost of between €15 million and €20 million.

The Trinity Captal was developed on part of the site of Pearse Street fire station and a number of period houses beside it. It opened for business in 2000 and has a spacious bar and restaurant to accommodate 235 customers, three meeting rooms, fitness centre and a courtyard garden. There is 443sq m (4,768sq ft) of vacant space at ground and basement level within the original fire station. There is also planning permission to provide an additional 52 bedrooms in an adjoining building on Pearse Street which is in separate ownership. New owners will be able to avail of outstanding capital allowances.

Paul Collins says he is expecting “strong worldwide interest” in the hotel not only because it is “highly profitable” but also because there is potential to raise the room rate and add additional bedrooms. There is also scope to rent the vacant space in the original fire station.

The Irish Examiner reports that the Government will be presented with a series of policy recommendations regarding the black economy, which is denying the State an estimated €5bn tax take per year, within the next six months.

After listening to proposals from the Small Firms Association and Isme, the chairman of the Joint Oireachtas Committee on Jobs, Enterprise and Innovation, Fine Gael’s Damien English, said the committee hoped to have a report ready for Government by the end of October. The report will be based on feedback received from public hearings and industry bodies such as Isme, the SFA, RGData, and Retail Ireland.

“The impact of the black market on small business is an issue of concern for the committee and one to which we are devoting a lot of time and attention,” said Mr English.

“It is important that we, as a committee with a remit in the area of jobs, enterprise and innovation, continue to play our part in contributing to achieving progress on this subject and finding new potential solutions to the problem and to protect small retail businesses.”

The SFA said that, prior to the recession, Ireland’s “hidden economy” was worth 14% of GDP, equating to €500m being generated each month to which Revenue has no access, about 4% below the EU average.

Yesterday’s meeting was broadly supportive of arguments put forward by both the SFA and ISME, but Fianna Fáil’s Dara Calleary questioned how effective a public awareness campaign might really be, while Labour’s John Lyons suggested it was a wider problem that called for a complete culture change in Irish society in order to rectify.

SFA chairman AJ Noonan, who has suggested Ireland’s black economy issue may have to be settled via European intervention, said he was “open to ideas” about how proposals could be worked, but said more focused attempts to tackle the problem are “overdue”.

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