Ireland at a crossroads
The heady days of the late 1980s and early 1990s don't seem that long ago.
It is just over 36 years since the International Financial Services Centre was established in Dublin. Not many will remember that the Centre was established as an inner-city urban regeneration project. This was the basis on which the European Commission waived state aid rules to allow special tax concessions to companies establishing in the Centre.
The Centre got off to an inauspicious start. Shortly after it was established, international financial markets crashed on "Black Monday". Despite this and subsequent setbacks, the Centre succeeded beyond all expectations and today Ireland is home to the European or global headquarters of a Who's Who of banks, funds (re)insurers and aircraft leasing operations.
But where do we go from here? The answer may lie in a brief history lesson.
Throughout the 1980s, Ireland experienced a severe recession, with high unemployment. However, a succession of governments attuned to the potential for "invisible earnings" from the export of financial services and the prospect of well-paid jobs not requiring grant aid threw its support behind the development of an international financial services industry. Bold imaginative thinking cut through bureaucratic obstacles, replaced over-caution with calculated pragmatism and ensured safety with efficient government scrutiny and a certification program for incoming financial services providers.
As we know, beginning with captive insurers and fund operations in the late 1980s and supported by concerted efforts on the part of the IDA and the government, Ireland developed a robust international financial services industry, including flagship names from the (re)insurance industry. However, it's important, also, to remember the willingness of governments to react nimbly and bravely to challenges to development of the sector. I still recall speaking at a conference in Japan promoting the 10% tax rate then available for insurers establishing in the Centre when the news filtered through that European Union had finally withdrawn its state aid waiver for the 10% tax rate for manufacturing and financial services companies. However, in a brave counter-step, Ireland introduced a reduced corporation tax rate of 12.5% for all companies and laid the foundation for Ireland's subsequent success in attracting foreign direct investment.
Today we find ourselves at a crossroads. With corporation tax receipts falling, warnings about overreliance on tax from the ICT and Pharma sectors, and the introduction of an international minimum tax rate, Ireland needs to identify and support the sectors that will produce steady, well-paid jobs into the future for our growing population. We need to promote the significant positive benefits that we have to offer international investors but also to appraise honestly the areas for improvement. As we approach the end of the first quarter of the 21st century, we need to identify, strengthen and support our unique selling propositions for the remainder of the century. We know that Ireland is open for business, however we need to be clear on what we are selling!
For advice, please contact James Grennan, Partner, or any member of the Insurance & Reinsurance team at ALG.
Date published: 11 October 2023