State to miss out on €22m a year from Eircom shares

The Government has joined the ranks of those left out of pocket by Eircom, with the Minister for Finance, Mr McCreevy, likely to lose out on more than €22 million a year in stamp duty payments on share transactions in the company.

The Exchequer is already poorer by almost €4 million after just two days of "grey market" trade in the share as a result of the decision by the former State telecoms group to register its business in Britain rather than Ireland.

Eircom transferred its residence to Britain last year to facilitate the payment of €446 million in dividends to the shareholders in the Valentia consortium that took the company private in 2001.

Valentia Telecommunications, the company headed by Sir Anthony O'Reilly, acquired a €2 British shelf company, Valentia Holdings, for the purpose.

Top Irish companies trade the equivalent of their market capitalisation more than twice in a year. On that basis, Mr McCreevy stands to lose out on more than €22 million in stamp duty in an average year.

Eircom will not officially start trading until tomorrow, and these early figures suggest that the Exchequer will miss out on a substantially higher sum in Eircom's first year back on the market.

Eircom operates largely out of the Republic, although it does have operations in Britain and interests in the US. A spokeswoman for the Irish Stock Exchange said that, while it was unusual for a company to register in one country when conducting the overwhelming majority of its business elsewhere, there was nothing to prevent it.

"If they had merely wanted to avoid paying stamp duty they could have incorporated in Germany which has no stamp duty on share dealings."

Sources in the stockbroking industry noted that, while the company did not benefit directly from the rate of stamp duty levied on share dealings, the lower UK rate of stamp duty might encourage greater activity in the stock.

A spokesman for Eircom said the way the company was incorporated was "never designed to avoid stamp duty". While the British registration did mean that stamp duty would be paid to the British authorities, he said this was simply a side effect of the registration. "Eircom is liable for taxes in Ireland on its business operations."

Eircom's shares, which floated at €1.55 on Friday, closed down six cents at €1.47 yesterday in Dublin. In London, the share was more than 5 per cent weaker, closing eight cents off on €1.46.