The European Commission is expected to insist on the phasing out of the rent and rates relief available to companies locating in Dublin's docklands, approving their extension only until December 2003. The four-year extension of the reliefs, expected to be agreed at a Commission meeting this week, means that firms will not have to pay back money they have claimed since moving to the International Financial Services Centre (IFSC).
But it also means that companies who have moved into the area since 1994, including firms locating in the most recent 12-acre extension, will enjoy the property tax reliefs for a much shorter period than the original 10-year time frame they had expected and budgeted for.
Among the attractions of locating in the area was that, as well as qualifying for double rent deductions, tenants in the IFSC enjoyed a remission on the rates payable to Dublin Corporation.
The firms likely to be affected include Citibank, whose European headquarters take up 215,000 square foot of the 400,000 square foot of office space being constructed in the area.
Bank of Ireland, US insurer AIG, the Irish insurance group FBD and solicitors A & Goodbody are also among the firms which will be affected. However, financial services firms, which are taxed at a special rate of 10 per cent applying to all IFSC-licensed companies, will not be badly hit. as A & L Goodbody.
As a partnership, the legal firm pays tax at the marginal rate of 46 per cent, so the rent deductions are more valuable to the firm.
Some of the later occupants of the original 27-acre IFSC site are also likely to be affected by having the reliefs, which were first introduced in 1989, cut short.
The compromise deal, which is believed to have been agreed following negotiations between the Department of Finance and the European Commission, is expected to be on the agenda for the Commission's meeting this week.
Proposed assistance to the National Conference Centre (NCC) is also likely to be considered at the meeting.
The controversy over the rent and rate reliefs arose after the Commission launched a formal state aids inquiry against the Republic following the Government's failure to apply for the necessary permission for tax incentives linked to urban and rural renewal schemes in 1993 and 1995.
This put in question the tax reliefs issued on all such schemes since 1993, including those available to investors and firms locating in the Custom House Docks.
The Commission's review also included capital allowances for investment in buildings but these were approved some time ago.
Whether firms who had been promised 10 years of rent and rate relief will be able to claim compensation from the Government remains unclear.
Despite its apparent negligence in failing to re-apply for permission for the aid schemes, it is thought the Government cannot be sued for damages because the principle of legitimate expectations is held not to apply in state aid cases.
