islamic finance: an opportunity for ireland gary tobin department of finance jim byrne office of the...
TRANSCRIPT
Islamic Finance: An opportunity for Ireland
Gary TobinDepartment of Finance
Jim ByrneOffice of the Revenue Commissioners
IBF Islamic Finance Seminar - 10th June, 2010
Overview of Presentation
Part 1 (Gary Tobin) Overview of Islamic finance market Motivation behind Irish legislation Opportunities for Ireland Next steps
Part 2 (Jim Byrne) What’s in the legislation
Parameters Transactions Covered Future
Developments in Islamic Finance
RetailBanking
CommercialBanking
Property
Islamic insurance
Equity Funds
Leasing
Securitisation
TreasuryServices
AssetManagement
1970s 1980s 1990s
What is Islamic Finance?
• Islamic finance requires all transactions to comply with Shari'a principles (Shari’a is the body of Islamic religious law).
• Islamic finance must observe a prohibition on earning interest (riba), on uncertainty/speculation (gharar) and investment in ‘unethical’ businesses, products or services (such as alcohol, tobacco, pork, gambling
What is Islamic Finance 2?
• Shari’a compliant products are typically backed by or based on an identifiable and tangible underlying asset;
• The investor and investee share the risk of all financial transactions.
• Under Shari’a law money is used to measure value and is not an asset in itself.
Islamic Financial Products
MurabahaLoan
DiminishingMusharaka
Mortgage
MudarabaBank Deposit
WakalaLarge Deposit
SukukBond
IjaraLease
Overview of Islamic Finance
Key Islamic
FinancialMarkets
EuropeSouth East Asia
Middle East
Global Islamic Finance Market
• The market for Islamic financial products is focused around 3 main centres;– Middle East (Bahrain, Abu Dhabi, Qatar)– South East Asia (Labuan Malaysia)– Europe (London)
• Industry is still in its infancy with issues around standardisation, regulation and consistent interpretation of Shari’a still to be overcome.
Overview of Islamic Finance
• Islamic finance is considered to be the fastest growing sector of finance in the world
• Assets have grown to $822bn in 2009, an increase of 29% on 2008.
• The Global Sukuk market is estimated by S&P to be worth $100bn.
Global Islamic Finance Market
• Islamic finance is considered to be the fastest growing sector of finance in the world, globally it is estimated that Islamic finance assets have grown to US $822bn in 2009 an increase of 29% on 2008.
• The Global Sukuk market is estimated by S&P to be worth $100bn.
Motivation for Irish legislation
New DTAs withGCC
Trade LinksWith GCC
New IFSC Opportunity
Irish MuslimCommunity
CompetitorJurisdictions
Motivation forLegislation
Islamic Finance in Ireland
• What we offer currently;
• Already it is estimated that Ireland is a location for 20% of Islamic funds domiciled outside of the Middle East.
• The Financial Regulator can and does authorise Shari’a compliant investment funds under collective investment scheme legislation.
Islamic Finance in Ireland
• The Revenue Commissioners issued an e-brief in October, 2009 that clarifies the tax treatment of Shari’a compliant funds, leasing and insurance services in Ireland.
• The technical changes provided in Finance Act 2010 will give equality of treatment to Islamic financial products as compared to conventional financial products.
Opportunities for Ireland
• Niche markets
• Ireland as a Gateway to Europe
• Opportunities for direct investment using the Sukuk (Islamic Bond) structure
New Opportunities for Irish Business (European)
• Build on strength of existing leasing, insurance and Funds industry– Takaful/Re-Takaful industry– UCITS structure
• Ireland as a gateway to Europe for Islamic finance?
• New sources of investment and capital– Sukuk structures
New Opportunities for Irish Business
(Domestic)Opportunities for ethical investment• The ethical approach and the physical nature of
the traded asset in Islamic finance is an opportunity that the Irish Financial Services industry would be in a strong position to promote to Muslim and Non-Muslim clients.
Irish Muslim Community• The Minister for Finance has committed to
examining the introduction in a future Finance Bill of additional legislation that will provide the Irish Muslim Community with products consistent with their faith.
Ireland’s Expanding DTA Network
New Opportunities for Irish Business (International)
• Ireland is strengthening business links with GCC – DTAs concluded with Saudi Arabia, UAE, Kuwait and Bahrain.
• Negotiations are also at various stages with Morocco and Egypt.
• Ireland also has strong links with South Asia where we have a DTA with Malaysia and negotiations this year will commence with Indonesia.
Next StepsNext Steps
Marketing Ireland in
The Region
Enabling Legislation
D.T.A.sM.O.U.s
B2B
Part 2: What’s in the legislation
Jim Byrne
Office of the Revenue Commissioners
Parameters
• Tax Briefing– Funds– Leasing – Insurance
• Legislation provides parity of treatment• Facilitates but does not require Shari’a
compliance• Focus on Substance not Form
Transactions Covered
• Credit transactions – loans (including asset backed loans) and mortgages
• Deposit transactions – bank deposit
• Investment transactions – investments in bonds or other securities
Credit Transactions
• Credit return treated as interest
• Where plant/machinery, customer entitled to capital allowance on asset
• Where finance raised, customer not entitled to loss relief where sells asset for lower price.
Deposit Transactions
• Customer places amount with financial institution and shares in profits / losses from use of money by institution
• No partnership for tax purposes between bank and customer - No permanent establishment for customer
• DIRT applies to “return” as if it were interest• Section 130 rules (profit participating interest)
apply where return in excess of normal commercial amount
Investment Transaction
• Certificates or bonds issued by company• Certificates entitle holder to return based
on profits or gains from underlying assets• Return treated as interest on security• Section 130 applies if excessive interest
paid.• No Stamp Duty on issue, transfer or
redemption of certificate
Future
• Guidelines
• Domestic Market
• Revenue Opinions