Ireland positions itself as global services centre

CAN Ireland really be mentioned in the same breath as London, Athens, Singapore and New York as a global shipping services centre? According to the Irish Maritime Development Office (IMDO), yes it can. The IMDO is an Irish semi-state agency that has been created to establish the foundations for such developments, which should also provide rewarding opportunities for Ireland’s maritime law industry.

Formed by the Irish government in January 2000, the IMDO is a constituent part of the Marine Institute in Dublin and has a statutory remit to promote and develop the shipping services sector. Its most recent proposal, a special tax incentive ‘tonnage tax regime’ for shipowners and shipmanagers, which was introduced by the minister for finance in the 2001 budget, has just received formal EU state aid clearance.

However, the tonnage tax is something of a misnomer. Rather than being a tax on shipping, it is an alternative method by which companies can calculate their corporation tax. The profits are taxed based on the tonnage of the ship, with a 12.5 per cent rate of corporation tax applied to the calculation to give a final low fixed corporation tax rate. The scheme offers shipowners the option of joining the special tax regime for a minimum period of up to ten years. It also provides owners with certainty for tax planning during this period as they will know their minimal tax position in advance.

The Irish government’s approach has been to provide precise, flexible and transparent legislation, something that other European regimes have neglected in preparing their tonnage tax schemes. The legislation also clearly sets out the other sources of income that qualify for shelter under the regime. For example, it exempts the company from paying tax on any other income benefit as a result of their shipping activities, such as capital gains on the purchase and sale of its vessels.

The ‘big ticket’ leasing community is amongst the sectors set to benefit most from the introduction of a tonnage tax in Ireland. Unlike other shipping incentive regimes, there are no prohibitions on lessors providing finance leasing and attracting capital allowances under the Irish regime. These measures are being introduced at a time when the international shipping industry – and its appetite for capital - continues to expand.

In 2002 alone it was estimated that $40 billion will be invested in vessel newbuildings, and a further $12 billion in secondhand purchases worldwide. Over 75 per cent of this capital will be raised through debt by major banks and leasing institutions. Ireland is extremely well-positioned as an international financial centre to take a slice of this niche market. The Bank of Ireland has already taken the lead in this respect with the structuring of a new Marine Finance Division.

The Irish Tonnage Tax legislation provides companies with clarity, flexibility, certainty and, above all, competitiveness with other fiscal regimes. It is for these reasons that the IMDO believes Ireland is very well- positioned to establish itself as a niche player attracting inward investment into the sector.

Catherine Duffy, partner with Dublin-based law firm A&L Goodbody, and a member of the IMDO advisory group, has previously commented in The Maritime Advocate (Issue 19, July 2002) on the legislative overhaul of Ireland’s merchant ship registry. The IMDO, in consultation with the advisory group and industry legal experts, initiated this process. It is anticipated that the overhaul and modernisation of the legislation will be completed later this year.

One of the many innovations is to provide a broad range of investors with greater access to the security traditionally enjoyed by banks providing mortgages. The new legislation will allow lessors and other investors to note their interests in the asset on the register and allow them greater priority as creditors. In the same way as mortgagors are the prime creditors in any deals related to title on land and building deals, investors and lessors will be entitled to greater priority of treatment in relation to the security they hold against an Irish-registered vessel. This allows for a much more modern approach to financing techniques by the registrar. Again, the definite economic link in Ireland to join a world-class register is at the forefront of the overhaul and is a mandatory provision.

The success of the International Financial Services Centre (IFSC) in Dublin represents the perfect example of what can be achieved by a small nation with a will to develop a globally recognised business cluster. The analogy of the IFSC extends to the ambitions of the IMDO. Many of the advantages Ireland has to offer from a finance viewpoint are applicable to the development of a niche maritime transport sector. The legal and financial services sector is foremost in the mind of the IMDO as it develops the Irish shipping services cluster.

Not content to rest on the success of the tonnage tax, the IMDO has also spent the last twelve months researching overseas vessel investment schemes and is close to proposing a scheme that will provide new opportunities to the financing sector in Ireland. Many schemes, from securitisation and EU tax-based leasing to private investor and business expansions schemes, have been investigated. A choice of detailed options offering suitable benefits, appropriate to Irish tax structures, will be proposed to the department of finance for review early this year.

Ireland is putting in place a very attractive strategic framework to position itself amongst other major international maritime legal and financial centres such as London, Athens and Singapore. The opportunity for Irish financial institutions to position themselves within this market has never been better.