Foreign shares

I read recently that Irish investors would be able to subscribe for shares in Deutsche Telekom this month. Could you please explain how members of the public do this?

Mr L.G., Dublin

It is somewhat appropriate that as domestic investors come to terms with the fact that the flotation of our own Telecom Eireann is likely to be hugely oversubscribed, a rival European state telecoms operation should be offering an alternative.

The partial flotation of Deutsche Telekom is the first truly European flotation, with the offer open to citizens of any euro member-state. And while the offer is not open to the genuinely small-scale investor - the minimum investment is around £1,500 - it is a realistic alternative for many looking to join the telecoms bandwagon. After all, Deutsche is still the biggest player in fixed-line telephony in Europe, as well as in ISDN and Internet provision. It is also number three in the mobile phone market.

People wishing to invest should contact either Ulster Bank or its stockbroking subsidiary NCB Stockbrokers, which have been appointed to deal with the Irish part of the flotation. The minimum investment is 50 shares, which are currently worth about £1,500 and there will be a discount on the price paid by institutional investors. Anyone holding the shares for 14 months will be rewarded with a bonus share for every 10 shares held. However, unless you have acted already, you will lose out as the discount and bonus shares apply only to orders received before last Tuesday.

Potential investors have been assured that a common allocation policy will apply across Europe, with no preferential allocation to, for instance, German citizens. Given that the shares trade in euros, there will be no currency risk in the issue for Irish investors.

The offer closes next Thursday and the flotation price and allocations will be decided over the subsequent weekend. The shares will start trading on Monday week, June 28th. NCB has said it will be charging a commission of 1.65 per cent to investors in the share issue.

Telecom flotation

I registered my infant daughter for the Telecom Eireann share offer. If I purchase shares in her name, can I sell them and, if so, are there any rules regarding the treatment of the sale proceeds?

Mr S.M., e-mail

This is a situation which, I would imagine, is facing a large number of investors for the first time. The nature of the flotation and the certainty that it will be well oversubscribed has only served to increase the number of people registering their young children as interested in investing in the company.

There are a number of issues which arise. On the primary question of who has the right to sell any shares registered in the name of a child, I understand the situation is that the shares are held in the child's name by a responsible adult, normally a parent.

As such, the parent or responsible adult has the right to sell the shares as they see fit in the interests of the shareholder.

The issue then arises as to how the proceeds are viewed by the Revenue Commissioners. There are two taxes in question - income tax and capital gains tax.

The situation with income tax is that the person whose income has bought the shares is the same as the one who will be subject to income tax in the event of such a liability arising on the payment of dividends.

In most cases this will be the parent, whose income has secured the shares on behalf of the child. However, if the child does have a genuinely independent source of income and if this is the money that is used to procure the shares, it is the child who will be subject to any income tax liability.

Of course, in such a case, the child would also have the benefit of an income tax allowance in the same way as all other income taxpayers.

One point to bear in mind is that child benefit, which might have been invested or saved for the child in their name, is not considered as independent income for the purposes of income tax and shares bought with such savings will still produce a liability on the parent.

This arises because, regardless of the best intentions of the parent in setting the money aside for the sole benefit of the child in question, the benefit is payable to one or other of the parents, normally the mother.

The situation with capital gains tax is also pretty much cut and dried. Whoever is deemed to be the source of the income used to buy the shares is the person responsible for any capital gains tax liability which might arise.

Mortgages abroad

There has been some discussion in the media about the significant difference between Irish mortgage rates and those of our euro partners. What are the issues and risks associated with an Irish homeowner transferring their mortgage to, say, a French or German provider?

Mr W.H., e-mail

When you say there has been some discussion about the variations in mortgage rates between member-states of the euro zone, you are absolutely right. However, that is as far as it has gone.

The spate of media reports was sparked by two things:

there was a wide discrepancy in lending rates between countries which, after EMU, shared a common interest rate - that is to say countries where the cost to banks and building societies of borrowing money was the same;

talk of cross-border bank mergers.

The simple truth is that while, in theory, there is nothing to stop a German or French lender looking for business in the Irish market, or vice-versa, any business of this sort has been the exception.

The reason is that while there is now nothing to stop financial institutions lending across national boundaries in the euro zone, there are a host of legal question marks surrounding what might happen if they were forced to foreclose on such a loan.

It is uncharted territory and few lenders are yet prepared to take the gamble, when the cost might prove high if they get it wrong in what are, for them at least, unfamiliar markets.

That is not to say it is impossible. However, it would be up to the borrower to approach a lender in one of the euro zone states and try to persuade them that the transaction made sound business sense from their perspective.

Please send your queries to Dominic Coyle, Q&A, Fleet Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.