Introduction

The approaching 25^th anniversary of the launch of the IFSC is probably a very appropriate time to review the relative strengths and weaknesses of Ireland's international financial services sector. Yes the IFSC was successful beyond all of our wildest dreams in terms of employment, inner-city regeneration and most surprising of all, our corporate tax take. But with the global financial crisis very real challenges had to be faced. Firstly the reputational damage suffered by Ireland internationally primarily as a result of domestic banking issues. Secondly the impact of the decline in our sovereign rating which concerned international players using Ireland as a platform for launching financial services products and as a location for centralising strategic group assets and services. Thirdly the impact of our increasing personal tax burden on our ability to attract and retain highly skilled mobile personnel. Last but not least was the concern about the 12.5% corporate tax rate. That was not a concern about Ireland's commitment to the 12.5% brand, which was never really in question, but whether we would be permitted to retain the rate by certain key EU neighbours. Concerns around the tax rate at least had eased before the Taoiseach launched the Government's IFSC Strategy 2011–2016 on Bastille day last month. The document, which is a 5 year plan for the international financial services industry in Ireland, acknowledges that the IFSC is critical to the Irish economy as a source of employment and economic activity and it outlines the Government's intention to “create more than 10,000 net new jobs, protecting existing employment and business, over the next 5 years, built on sustainable and responsible foundations”.

Future Strategy for the IFSC

The strategy outlined recognises that the achievement of the goal of 10,000 net new jobs is dependent upon a number of key drivers. The report in particular reflects:

• Acknowledgement that Ireland's tax regime across, all tax heads, must remain competitive, transparent and responsive. The report reiterates the Government's commitment to maintaining the 12.5% corporate tax rate, continuing to expand the double tax treaty network and further developing Ireland's reputation as a responsible on-shore tax jurisdiction.
• Recognition of the need to continue to develop a credible, responsible and internationally respected regulatory regime which will facilitate financial innovation whilst imposing proportionate and appropriate regulation in a balanced fashion.
• Affirmation of the need to attract key talent to Ireland with a view to providing a labour force pool with relevant expertise in order to fuel growth of the sector. In addition to fostering the development of appropriate skills, bearing in mind the approaches of competitor locations, the Government indicates that the current personal tax regime may be reviewed to ensure that Ireland is a competitive location for attracting the key industry talent to drive the sector forward. This is likely to involve enhancement to the existing tax regime for expatriates.
• Commitment to facilitating the development of growth areas within key existing financial services industries operating in the IFSC. The concept here is to ensure Ireland is dynamic in its approach to this industry sector by being to the forefront in developing new business lines, facilitating first mover advantage and attracting investment from emerging markets. Particular mention is made here of Islamic Finance and Green Financial Services where enabling tax legislation has recently been introduced.
• Realisation that in order to ensure Ireland's long term competitiveness is sustainable, there has to be a commitment to control business costs. Building on the advances made to date in reducing the costs of doing business in Ireland, the Government outlines how it plans to protect and improve on these advances within its remit.
• Confirmation that a coordinated response and approach to international markets by Government and industry stakeholders is critical in the implementation of this strategy.

Renewal of Government Mandate

Probably the most important impact of the launch is that it represents a renewal of the Government mandate which has been hugely important to the success of the IFSC over the years. The fact that it has come right at the start of the new Coalition's term in office is particularly important not only for the stakeholders here but also for the international investors who look very closely at signals emanating from countries they have invested in. It also represents an unequivocal statement from the Irish Government that the IFSC is open for business and that international financial services will play a key part in Ireland's economic recovery. It has the full support of state agencies including the Central Bank, IDA and Enterprise Ireland. Companies operating in this sector have been told what they can expect from policymakers over the next 5 years in all key areas including tax policy, regulation and education and skills. The area of regulation is particularly important in a financial services context and if the following quote from the report can be delivered on it would have a very positive impact in terms of international projects establishing here:

• “The Central Bank will maintain the highest standards of oversight and will engage constructively with firms to secure fulfilment of regulatory and supervisory requirements. While firms can expect challenge, they can also expect professionalism, cost-effectiveness and speed. The Central Bank will ensure that as it expands it will maintain this approach at all levels of interaction with firms.”

New Product Development

In terms of product development the report specifically outlines opportunities for growth under the headings of insurance, funds, asset management, international banking and cross border pensions. It showcases specific initiatives covering pan-European hub locations on the insurance side, innovations in the funds space, further development of the “Green” IFSC agenda, attraction of IP commercialisation and R&D activities into Ireland (linking this with complimentary activity in the global entertainment and media market which is already looking to Ireland), etc. The report acknowledges the need to embrace new investors and developments in emerging markets-private equity and VC investors in addition to generating potentially high-value activities, could also provide a broader benefit to the entrepreneurial needs of the domestic market, while the Middle East and Asia offer opportunities for Ireland to partner with investors in those regions under the umbrella of Islamic finance activities.

Conclusions

The announcement of a clear and committed strategy for the international financial services industry in Ireland has to be warmly welcomed. Implementation will be key but if it can be delivered there is no reason why that stretch target of 10,000 net new jobs cannot be achieved.

Enda Faughnan is Tax Partner at PricewaterhouseCoopers
Tel + 353 1 7926359
Fax +353 1 7926200
Email enda.faughnan@ie.pwc.com
Website www.pwc.com/ie