Decision on tax changes 'followed official advice'

TAOISEACH BRIAN Cowen said he was following official advice when he instructed the Revenue Commissioners to alter bank-related tax measures as minister for finance.

“It was 2006, but I will get the information,’’ said Mr Cowen. “I have no problem with that. I recall, however, that the decision on those matters followed official advice.”

He was replying to Labour leader Eamon Gilmore, who said that on St Patrick’s Day 2006, the Revenue Commissioners issued a compliance notice to the effect that contracts for difference (CFD) would have to be the subject of stamp duty.

“Within days, the Taoiseach, as minister for finance, caused the Revenue Commissioners to reverse that decision and to withdraw the compliance notice. He did so after being lobbied.’’

Mr Gilmore said the “overhang’’ of the Quinn interest in Anglo Irish Bank was assembled using CFDs, an arrangement whereby the person did not buy shares. He or she effectively gambled on them, buying an interest in whether they went up or down.

“Why would someone use contracts for difference to acquire an interest in a bank or other body rather than buying the shares?

“One reason is that contracts for difference have a different tax treatment from the purchase of shares. Stamp duty is payable on shares whereas contracts for difference are not liable for stamp duty,’’ said Mr Gilmore.

Mr Cowen said it was unfortunate that, in asking a question about 2006, Mr Gilmore had not given him prior notice. He added that he would get an accurate answer for the Labour leader as soon as he could.

“I did nothing at anyone’s behest. I did it on the basis of official advice on a matter which was having an effect on the trading of shares,’’ said Mr Cowen.

Pressed further by Mr Gilmore, the Taoiseach said his recollection was that a professional body had lobbied him. “I have nothing to hide anyway.’’

Mr Gilmore quoted the assessment of Irish Times journalist John McManus, who had written about the issue days after Mr Cowen’s decision.

“The idea that the Minister for Finance should actually condone favourable tax treatment of this type of investment over plain vanilla share buying is hard to defend.

“And the fact that between 20 and 50 per cent of the trades done in Dublin are done via CFDs should actually set the alarm bells ringing in Merrion Street. The department should be asking themselves what will happen to all these leveraged investors when the inevitable downturn in the market comes.’’

Mr Gilmore said that this was “very prescient because now we know what has happened to all those investors and to the banks now that the downturn has come’’.

The Labour leader added that the “overhang’’ of Quinn shares in Anglo Irish Bank, which the Minister for Finance had described as causing instability in the bank, brought about a situation where that bank ended up having to be nationalised, where the entire banking system had been put at risk, and where repeated efforts had to be made to restore confidence in it, and where tens of thousands of people were losing their jobs as a result of a lack of credit being extended to them.

“That is what the Taoiseach was being warned about by this commentator in 2006.’’

Mr Cowen said the international credit crunch had brought about a situation where Anglo Irish Bank’s business model had come under pressure and the market made a decision on that.