Remarks of An Tánaiste and Minister for Enterprise, Trade and Employment, Mary Harney, TD

at the 6^th Annual DFIA/NICSA Global Funds Conference

Tuesday 3 June 2003

National Gallery, Shaw Room

[Acknowledgements]

The success of Ireland as a location for international investment funds is extraordinary. It was built from a zero base about 15 years ago when we started our international financial services centre.

It has involved the hard work, belief and commitment of many people among investment administrators, professional service providers, government officials and, not least, our international investors.

No matter how it's measured, Ireland now measures up as an international funds centre.

In March this year, the net asset value of Irish-domiciled funds was €300 billion. A further €150 billion of investments is being administered in non-Irish domiciled schemes.

We had a 7 per cent growth in the value of Irish funds during 2002. This was an excellent achievement in the face of the downturn of international equity markets.

5,000 people in Ireland now work on international funds directly. 1,500 more people work in professional advisory firms servicing the business. Many more indirect jobs have been created in I.T. firms and other service providers.

International financial services has become a very successful component of the Irish economy. The sector now accounts for 15 per cent of overall corporation tax receipts based on 2002 estimates.

The special tax rate of 10 per cent was a very important factor in getting the industry off the ground. Since the start of this year, we have implemented a 12œ corporation tax rate for the whole country. We did this in the context of agreeing with the European Commission to phase out special tax measures.

International financial services pointer for economic strategy

International financial services are a showcase of how Ireland will continue to develop and sustain high quality employment. They point the way for how our economic strategy will work in the coming years.

For example:

• our strategy will rely on high skills, innovation and leading edge solutions in global markets. The international funds industry in Ireland already works on this basis.

• we will need to remain cost competitive in higher value added areas. This has been the experience of international funds in Ireland over the last 15 years.

• we will continue to embrace fully the single European market and constantly seek out new opportunities as the single market for financial services is completed. Again, this has been the experience of the funds industry. You are already working on anticipating new opportunities.

• we will continue to pursue national policies in tax and regulation that are both in the public interest and encourage and support enterprise. This is the way that the IFSC developed, and it is the way we intend in the detailed interaction between public and private sector to continue.

Joint position on tax submitted to Convention on Europe

We have always co-operated well with the European Commission and fellow Member States on state aids issues and tax measures.

The Irish government's view on corporation tax is well known and understood in Europe. We believe that national governments should continue to make decisions in the corporation and personal tax areas. This means in all aspects, not just in regard to the corporation tax rate, for example.

We see this as a political issue of democratic mandates from national electorates. And our view is shared among present and new Member States.

As recently as last week, we joined in a group including the UK, Spain, Sweden, Poland, Latvia and Estonia in tabling amendments to a new draft constitutional treaty being considered at the Convention on Europe.

Our group said that we view tax administration and enforcement as an intrinsic and key part of the tax system, which must remain the preserve of Member States. We said that we support administrative co-operation between Member States, but to be effective, this requires Member States to work willingly together. Therefore, it is best to preserve unanimity in decisions on tax.

I do not accept that there is an economic or political case that there are serious and negative distortions to competition in the single market that require Member States to give up, or to contemplate giving up, national decision-making on corporation tax.

International investors in Ireland, including those involved in funds, have made their decisions on the basis of a stable 12œ per cent corporation tax rate. The government of Ireland will hold faith with their expectations.

Regulatory developments

Just over a month ago, our new financial regulator began its operations. With the Irish Financial Services Regulatory Authority, we aim to sustain and develop a world-class regulator. IFSRA brings together the regulation of all financial services in Ireland and has been structured to ensure that the expertise and experience of the Central Bank staff are kept for the future.

The new regulator has been given the job in legislation of promoting the development of the financial services sector, and we look forward to it carrying out this function fully.

In relation to law and regulation, we are proceeding with a number of important new measures, in full consultation with your association and other industry representatives.

For example, last week, I signed a Statutory Instrument to provide for a common contractual fund, CCF, under the UCITS structure. This new regulation also amends and consolidates all UCITS legislation in Ireland from 1989 to 2003 in a single document. I believe, this simplified text incorporating the CCF, will be an important benefit to the industry and regulators alike.

This development now means that Ireland is uniquely placed as a Member State of the European Union where UCITS can be established under all three structures - corporate, trust and contract.

I have also signed a second piece of domestic legislation to bring into Irish law the provisions of the European UCITS product directive. This second regulation allows the maximum flexibility for fund promoters to ensure that during the transition period Irish UCITS can be established under the provisions of the existing product rules or under the provisions of the amending product directive.

An increasingly important issue for Ireland, Europe and the United States is corporate governance.

We are currently bringing the Companies (Auditing and Auditing) Bill through our parliament. It passed all three stages in the upper house last Thursday.

Following detailed discussions with industry representatives, the Government's intends to exempt regulated investment companies from the requirements of seven sections of this new law. This will be done by disapplying these provisions to such companies at the time that these sections of the Act are being commenced.

The key sections to be disapplied for investment companies relate to review of accounts for compliance with the Companies Acts and the requirement for a reserve fund to be established to pay for this, the necessity to establish an audit committee and the directors' compliance statement.

My colleague, Minister Michael Ahern announced this development in his Second Stage speech in the Seanad last week. As circumstances change we will continually adapt to ensure that Ireland maintains an attractive regulatory environment

One possibility for the future which we are exploring is the introduction of a separate legislative code for investment funds building on the recommendations of the Company Law Review Group. I support this work and I hope to see it brought to fruition.

Conclusion

My colleagues in government appreciate very keenly that Ireland has become an international fund jurisdiction by close collaboration between industry and government.

The legislative developments that I have just announced came about from this close collaboration. The continuation of this close working relationship guarantees that the legal and regulatory environment remains responsive to evolving needs of the industry.

We are all determined to ensure the continuity of the conditions that led to the industry growth to date - openness, flexibility, competitiveness, co-operation, the `can do' attitude and, of course, an internationally-focused legal and regulatory framework.

These qualities, combined with the expertise developed and experience gained over the last decade will, I hope, continue to attract the inventive and visionary people and will ensure a place for Ireland in the competitive global investment funds industry.

Thank you.

ENDS