SHARIA LAW:PROPOSED TAX changes designed to attract business from the Islamic world are likely to be a first step according to Department of Finance officials.
The Finance Bill proposes to introduce new measures designed to accommodate transactions that comply with Sharia law, based on principles contained in the Koran, Islam’s sacred book.
According to the Department of Finance, the move is designed to clarify the law in this area in order to boost the Republic’s attractiveness to Islamic financial services.
The measures contained in this year’s Bill will be aimed at wholesale financial markets rather than retail business, but a department spokesman indicated that the Government is also willing to look at this.
The spokesman explained that the provisions are a first step, but pointed out that, in light of the Republic’s growing Muslim population, provisions dealing with retail financial services could be looked at next year.
Islamic financial services is a growth industry, and estimates of the worth of Islamic equity funds alone run to about €3.5 billion worldwide.
Sharia law governs these transactions. It forbids investing in stocks based on alcohol, tobacco, gambling, arms and other activities that are contrary to Muslim beliefs. In particular, the system bans the charging and paying of interest, and because of this prohibition, it is unclear how to treat it under the Irish tax laws that cover financial services, as these are based on interest payments and earnings.
It does allow certain types of credit sales which allow lenders, such as banks and financial institutions, to earn a profit on the amount that they have loaned, or arrangements where lenders share in the assets involved, and assume some of the risk and some of the profit.
Similarly, both the borrower and the lender can acquire the asset with an agreement that the borrower buys out the lender in the future at a profit.
Sharia law also permits the creation of tradable bonds known as “sukuks”, whose holders share in the underlying asset, and are entitled to a return from any profits, but not to interest payments.
The Finance Bill adds new provisions to the Taxes Consolidation Act 1997 that cover specified finance transactions, which will treat returns on Sharia law transactions as interest.
The measure covers a range of credit transactions and allows for the creation of investment securities similar to sukuks.
Commentators yesterday said that the provisions are basic, but welcome as they should help to open the Republic to new investment.
Aidan Walsh, corporate tax partner with Ernst Young, pointed out that it fits in with the firm’s recent global survey showing that the Republic is the world’s third most open economy.
“Ireland has benefited tremendously from globalisation with over 80 per cent of our goods and services exported internationally,” he said.
“Permitting and then encouraging different, non-Anglo-Saxon or non-western forms of financing and investing is a most welcome announcement from the department and will help further enhance our international attractiveness.”
