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News : Irish Last Updated: May 13, 2013 - 9:00 AM

Friday Newspaper Review - - Irish Business News - - May 10, 2013
By Finfacts Team
May 10, 2013 - 7:35 AM

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The Irish Independent reports that Social Protection Minister Joan Burton has put the spotlight on U2's decision to move its publishing arm to the Netherlands – as part of an attack on the "scandal" of tax avoidance.

Bono and his fellow band members have come under fire from tax justice campaigners since they made the move in 2006 to pay less tax. But Ms Burton is the first cabinet minister to highlight U2's actions.

She criticised companies that were not paying their fair share of taxes to help pay for essential public services.

"That's not acceptable if a huge amount of personal wealth and corporate earnings and corporate profits are diverted in a way in which they make little effective contribution," she said.

"The well-known example, U2, moved quite an element of its activities through the Netherlands because clearly whatever the Netherlands was doing was far more attractive in tax terms for their companies and for their organisations than the quite generous arrangements that Ireland has traditionally had in the area," she said.


U2 moved their publishing arm to the Netherlands after the tax exemption for artists introduced by former Taoiseach Charles Haughey was capped at €250,000.

The band had been one of the biggest beneficiaries of the scheme. Ms Burton said that there had been reports of multi-national companies using schemes in the Netherlands to obtain effective tax rates of 0pc to 4pc.

She made her comments at the annual conference of Chartered Accountants Ireland in Dublin during a debate on the "two-tier" tax system.

Ms Burton – who is also a chartered accountant – said she was very interested to hear that the G8 summit in Fermanagh would be considering the issue of "exceptionally aggressive" tax avoidance and tax planning.

"This may inject some fresh thinking into what for citizens in many different countries has become a scandal," she said.

She also referred to Starbucks paying an extra £20m (€23.6m) in corporation taxes to the British Government, following revelations that it has paid no corporation tax in the UK in the past three years.

U2 manager Paul McGuinness has previously defended the band's decision to move its publishing arm from Ireland to the Netherlands, insisting the band is a global business and pays taxes globally.

The Irish Independent also reports that the controversial European Financial Transaction Tax (FTT) could make it more expensive for the State to borrow on international money markets even though we've opted out of the levy, the State's borrowing agency has said.

The National Treasury Management Agency (NTMA) also said the levy, which is set to be introduced in 11 EU countries, would incentivise banks to rely on central banks and the ECB for funding.

Irish authorities have opted out amid concerns that if we sign up to it, Irish business could lose financial services to the City in London.


But in addition, the NTMA has said that the tax would have a negative impact here because of the knock-on effect on the secondary bond markets.

"Although Ireland has opted not to sign up for FTT, and while primary bond issuance by sovereigns are exempt, the tax would still be levied on routine secondary market dealings in Irish bonds by firms in the EU 11, reducing their liquidity and adding to the cost of funding," an NTMA spokesman said.

"The 11 countries that have signed up for FTT have recently queried the European Commission's estimate that it would add only a small amount to debt service costs for sovereign borrowers.

"In addition the inclusion of repo markets within the draft directive has the potential to seriously hinder the functioning of collateral-based cash borrowing/lending between banks, thereby incentivising the banks to rely on the National Central Banks and the ECB who are exempt from FTT."

The UK, which is opposed to the proposal, has launched legal proceedings in a bid to block the €35bn levy on financial transactions agreed by the 11 EU members earlier this year.

British Prime Minister David Cameron reiterated the country's opposition yesterday, stating the levy could damage the UK's financial services sector and Europe's global competitiveness.

Earlier yesterday the Department of Finance told the Oireachtas Finance Committee that Irish officials have not yet done a detailed analysis of the potential impact on this country of the controversial levy, but that the NTMA agreed with the UK's assessment.


"We've had preliminary soundings back that say they (the NTMA) do agree to a large extent with what the UK authorities have been saying all along in relation to the debt management – that there would be an impact on the secondary bond market," Brenda McVeigh, of the Department of Finance, said.

But she said they couldn't quantify the impact.

The countries that have signed up for the FTT are Germany, France, Italy, Spain, Portugal, Slovenia, Estonia, Belgium, Greece, Austria and Slovakia.

The EU is enabling member states that do want to introduce the tax to do so under the "enhanced co-operation" procedure.

That allows a proposal to be adopted by a minimum of nine member states, even if other members don't plan to do so.

The Irish Times reports that employment in the construction sector was effectively deregulated yesterday after the Supreme Court struck down as “unconstitutional” wage agreements involving thousands of workers.

In a landmark ruling, the court said the system of Registered Employment Agreements (REAs), which set minimum rates of pay and conditions in several employment sectors, had delegated law-making powers beyond the Oireachtas.

The ruling has implications for 70,000-80,000 employees across the construction and electrical contracting sectors whose employment terms are governed by the agreements, as well as a smaller number of workers in the printing and drapery industries.

The system, which has been the subject of several legal disputes in recent years, allows employers and unions to make agreements, which when registered by the Labour Court became legally binding on an entire sector.

‘Field of legislation’

However, the court declared the agreements had strayed “unmistakably into the field of legislation, which was the sole preserve of the Oireachtas”.

In their ruling, the five judges said the Industrial Relations Act of 1946, which provides for the agreements, raised serious issues of incompatibility with the Constitution.

The challenge to the REAs was taken by a group of electrical contractors, who welcomed the court’s ruling, saying the decision would allow them to control their own cost-base and secure existing jobs.

However, its full ramifications remained unclear yesterday with employers and unions at odds over what it meant for existing employment contracts governed by REAs.

The Government said it was studying the judgment, and will take legal advice on it before commenting in detail.

Minister for Jobs, Enterprise and Innovation Richard Bruton insisted the existing contractual rights of workers in sectors covered by REAs were unaffected by the ruling.

“Contractual rights can be altered only by agreement between the parties involved,” he said.

However, the electrical contractors’ group, the NECI, said the judgment meant all current agreements were “now cancelled”.

Ibec’s Brendan McGinty said the judgment not only raised questions as to the legal status of recently agreed REAs, it also called into question the separate Joint Labour Committee wage-setting system, which remains under review following a similar High Court judgment of unconstitutionality in 2011.

The Technical, Electrical and Engineering Union said the ruling erodes existing protection. The union’s general secretary, Eamon Devoy, said the electrical contractors have brought about a situation whereby foreign contractors will enter the country to undercut domestic operators.

Savage attack

Socialist TD Joe Higgins said the ruling will be seen by employers and subcontractors as a signal for a savage attack on the wages and conditions of workers.

Fianna Fáil’s spokesman on jobs and enterprise, Dara Calleary, called on the Government for clarity .

“There is still confusion over whether those currently covered under existing contracts will see a forced reduction in pay and conditions as a result of this decision,” he said.

The Irish Times also reports that the outgoing Financial Regulator, Matthew Elderfield, has warned against easing off on regulating the financial sector in what he said was probably his last public address in his position.

Mr Elderfield, who is moving to take up a position with Lloyds Banking Group after the summer, took the opportunity while speaking to an insurance industry conference in Dublin to express the view that strong banking and insurance supervision should continue into the future.

His comments about regulation come less than a week after the deputy head of AIB, Michael Somers, said he was “dismayed” at the number of banks in the IFSC that had handed back their licences over the past two years and that this was because of “heavy regulation”.

Mr Elderfield told the European Insurance Forum in Dublin yesterday that, post-crisis, most boards and managers understood that higher standards were here to stay and that Ireland’s reputation as a place to do business depended on “good regulation and strong supervision”.

In a reference to the former Anglo Irish Bank chairman Seán FitzPatrick, he said it was not too long since a banker had said that it was “time to shout stop; the tide of regulation has gone far enough”.

At some point, the debate about over-regulation and supervision would return, “if indeed it has ever gone away”.

Transparent debates

This was healthy and reasonable but he hoped that debates on regulation and supervision would be done transparently and that they would be given “short shrift if they take place as a vaguely articulated concern about burden and competitiveness without being grounded in specifics to ensure an informed debate”.

Mr Elderfield said it would be sensible, when the debate did resurface, to cast a watchful eye on whether adequate resources, best practice powers and genuine independence were being maintained “so that strong supervision survives this ebb and flow intact, through bad times and, in the future, good ones too”.

He said concerns over the cost of maintaining a high quality supervisory staff, including concerns over pay rates when austerity eases, should be tempered by the terrible cost to society of financial failure.

“The €1.65 billion projected insurance scheme support for Quinn Insurance is in the order of 80 times the current year costs of supervision of the insurance industry.

“And the €64 billion capital investment from the taxpayer into the Irish banking system represents a staggering 1,409 times the current year costs of banking supervision.”

He said other key elements to what was required included the strong set of powers currently being adopted in the Dáil and a supervisory philosophy that encouraged the challenging of firms and ensured that problems were tackled rather than allowed to fester.

The final element key for a supervisory institution was that it was truly independent from industry and politics in the making of its supervisory decisions.

Distressed mortgages

Mr Elderfield afterwards told reporters that if deals that were being offered by banks to distressed mortgage customers, some of which involved accruing interest on that part of the mortgage that was not being serviced, were not sustainable, they would not be in compliance with what was required by the Central Bank.

He said the banks needed not just to reach specified targets, but had also to do deals on terms that were sustainable.

“If we think they’re not being done on sustainable terms, we will communicate that to them.”

He said the Government had told bank executives that their jobs were at risk if they missed the targets on tackling distressed mortgages.

Bank chief executives were taking the targets “very seriously”, he said. “Senior management have to really make this happen if they want to stay in their jobs.”

The Irish Examiner reports that  Ireland’s burgeoning offshore oil and gas industry has the potential to produce between 10,000 and 15,000 jobs per year and substantially increase the exchequer’s annual corporate tax take; but only if some existing barriers to entry for overseas players are removed, according to a new report.

The ‘Making the Most of our Natural Resources’ study — undertaken by PricewaterhouseCoopers (PwC) and commissioned by Providence Resources — claims that, with the right supporting conditions in place, if Ireland were to have 10 commercial Barryroe-style fields in operation, an average of 13,500 jobs could be maintained per year, during the average 10-year development phase, with 11,500 a year produced during the average 25-year production phase.

PwC also claims, in the newly published report, that even a single producing field, such as Barryroe, could bring in about €4.5bn in corporate tax and profit resource rent tax over its lifespan; which would equate to the Government’s total corporate tax take in 2011.

However, despite ExxonMobil beginning drilling off the west coast and a host of smaller independent international explorers increasingly looking at Irish waters, the report suggests more needs to be done in order to unlock the true potential of the industry here and attract more overseas players.

“Ireland is underperforming, relative to other European players, in the attraction of exploration investment from the oil and gas industry. This underperformance is partially attributable to factors beyond the control of policymakers, but there are important policy contributors. The oil and gas industry has the potential to transform local and national economies, but a critical mass of activity is needed before a substantial indigenous supply base can develop,” the study noted.

Ireland’s tax regime is seen as being “relatively favourable” compared to high-production countries, but its performance, in terms of commercial discoveries, remains weak, and the demand for licences is modest, PwC suggests. It added that Ireland is still seen as a less attractive location, by foreign explorers, than the likes of Britain and Norway, both of which have higher headline tax rates.

Also commenting, Providence Resources chief executive, Tony O’Reilly Jr, said that the report shows that if Ireland is to successfully exploit its hydrocarbon potential, “continued and significant foreign direct investment will be required”.

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