History




The concept of a low tax international financial service centre is attributed to Irish businessman Dermot Desmond and politician Ruairi Quinn among others, whose ideas were later picked up by Fianna Fáil leader Charles Haughey and incorporated into his 1987 election manifesto (with contributions from AIB CEO Michael Buckley). Despite resistance from the Department of Finance (concerned about the impact on domestic tax revenues), Haughey overruled and got permission from the EU to create a special 10% tax incentive zone (the IFSC), in the 1987 Finance Act (Section 30).

The CHDDA had earlier been created under the auspices of the Garrett Fitzgerald lead Fine Gael-Labour minority government as a Special Purpose Agency (SPA) in November 1986. The physical manifestation of the IFSC began with the construction of three offices - The International Centre, IFSC House and La Touche House, all with a distinctive green colouring. To operate in the IFSC and access the 10% tax rate, companies had to be approved by the Certification Advisory Committee (CAC), composed of representatives from the Irish Development Authority, the Department of Finance, the Department of Enterprise, Trade and Employment and the Central Bank of Ireland.

The next major event was the Irish Taxes and Consolidated Act, 1997 (TCA) which upgraded the legal and tax structures in the IFSC, and in particular created the " Irish section 110 SPV" and laid the foundations for the Double Irish, Single Malt and the Capital Allowances for Intangible Assets BEPS tools. In addition, the Dublin Docklands Development Authority was set up to oversee the expansion of the IFSC's site (most notable being the reclamation of the Grand Canal Basin site)

The "dual structure" Irish corporate tax rate, came under pressure from the EC (due to Competition Rules), and it was agreed that it would expire in 2005. In advance of this deadline, the Irish Government in the 1998/1999 Finance Acts introduced a lower 12.5% corporate tax rate for the entire country which was fully introduced from 1 January 2003, and by 1 January 2006, all remaining IFSC companies (some held their old licenses) were on a 12.5% rate. The IFSC ceased to exist as a required legal entity.

The next major event was the Irish financial crisis from 2008 to 2013. The IFSC was a major EU securitisation hub and the effect of billion euro special purpose vehicles (or SPVs) collapsing added to the concern over Ireland's financial position. It did not help that these SPVs (and other IFSC type activities) produced a further distorted picture of Ireland's already precarious National Accounts statistics. The sudden drop in Dublin's ranking on the Global Financial Centres Index ("GFCI") from an all-time high of 10th in March 2009 (GFCI 5), to 23rd by September 2009 (GFCI 6), sparked a formal investigation.

A tightening by the Irish regulator (after a period of lose regulation) which followed the Irish financial crisis led some financial institutions to move operations elsewhere (as well as others who were exited) and caused Dublin's GFCI ranking as a financial services centre to drop further to 70th in 2014 (GFI 16). IFSC institutions cited the timeliness of decisions by the Central Bank of Ireland as having an impact on their operations. Since 2014 however, the IFSC has started to recover, rising to 31 in the 2016 GCFI 21 ranking.

The IFSC Securitisation Sector produced a major domestic scandal when it was revealed in mid 2016 that US Distressed Debt funds (pejoratively called "vulture funds") had been using the Irish Section 110 SPV to avoid all Irish taxes on their Irish domestic investments. The Irish Government closed the "loopholes" but it was estimated that the loss in Irish tax revenues to the Irish exchequer runs to billions of euros (exceeding the value the securitisation sector ever delivered to Ireland). Discussed further in vulture fund Irish tax avoidance.

The IFSC Securitisation Sector was further pressured when it was revealed in 2018 that Russian Banks (some under EU and US sanctions) had also been using the Irish Section 110 SPV to funnel over €100bn through the IFSC. Further academic studies showed that the IFSC SPV sector was operating in an almost unregulated fashion where structures were more akin to brass plate companies. Other ex. Central Bank of Ireland regulators also publicly highlighted their concerns. Discussed further in unregulated shadow banking.

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