DUBLIN — Ahead of the U.K. exit from the European Union in March 2019, several Asian financial institutions have already set up hubs in other cities within the bloc to ensure continued access to the continent.
Ireland is among the countries hoping to benefit from Asian unease prompted by the Brexit vote, with Dublin regularly touted alongside Amsterdam, Frankfurt, Luxembourg and Paris as possible destinations for banks trying to reposition due to Brexit.
So far, Nomura International and Daiwa Securities have set up hubs in Frankfurt, base of the European Central Bank, to serve their European businesses while still keeping their London presence; Mitsubishi UFJ Financial Group has chosen Amsterdam for its new European base; and Bank of China has opened a new subsidiary in Dublin.
A key reason for financial firms making such moves is to ensure that business can continue as usual if the U.K. loses its so-called passporting rights after Brexit and if it leaves the single market. These rights allow financial services firms based within the bloc to seamlessly conduct business in other EU member states.
Ireland hopes that its its image as a low-cost Anglophone base in the EU will be attractive to companies making those decisions. Ireland’s corporate tax rate of 12.5% is below the EU average of just over 18%. In 2015, Ireland received 4.3% of foreign direct investment into the EU though its gross domestic product is less than 2% of the EU total.
Frances Fitzgerald, deputy prime minister of the Republic of Ireland, led a trade mission to Singapore and Japan in late September, in part to promote the country as an EU base for companies. “We see Ireland as the post-Brexit solution [for] many companies,” Fitzgerald said in Tokyo then.
In an interview with Nikkei, she added: “We’re seeing a big increase of the number of companies visiting to look at Ireland as a location to consider.”
As well as Bank of China, Bank of America, JP Morgan and British bank Barclays are among the other financial institutions that have opted to hedge against Brexit by expanding operations in Ireland.
“We are receiving a significant number of Brexit-related authorization enquiries from across all sectors, including banks, insurance companies, investment firms and payment institutions,” said Katie Philpott, a spokeswoman for the Central Bank of Ireland, the country’s financial regulator.
Ireland’s drive to attract more Asian investment is likely to become more urgent if the U.S. government manages to push through a plan to lower corporate tax from the current 35% to 15-20%, close to the level in Ireland. President Donald Trump has vilified American businesses that have invested overseas, prompting concerns in Ireland that American tech and pharmaceutical companies with significant operations there could look into repatriating.
But for now U.S. investment in Ireland continues to grow, with LinkedIn last month opening a Europe, Middle East and Africa headquarters in Dublin, joining the likes of Facebook and Twitter, all of which have European headquarters clustered in a part of Dublin nicknamed “Silicon Docks” — as does Google, which employs around 6,000 people in Ireland.
The Irish government hopes that the presence of American corporate giants could act as a beacon for Asian counterparts checking out possible post-Brexit EU bases.
However on Oct. 4, the EU Commission said it will take the Irish government to court over $14.5bn in European tax that the commission said Ireland must collect from Apple, which also employs around 6,000 people in Ireland. The move shows that some in the EU, including dominant member states France and Germany, are not happy about low tax regimes in place in smaller members such as Ireland, Luxembourg and the Netherlands.
In the meantime, Irish officials agree that London will continue to be an important base for financial services firms. “London will remain a major financial center, regardless of how companies manage their EU carve-outs from their U.K. operations,” said Kieran Donoghue, head of financial services at the Industrial Development Authority Ireland, a state investment promotion agency.
A recent Reuters survey suggested that about 10,000 finance jobs will be shifted out of Britain if the U.K. leaves the single European market after Brexit, much less than previous predictions of up to 100,000 jobs, out of the one million or so currently employed in the sector in the U.K., according to an April 2017 British parliamentary report.
London extended its lead in a global ranking of financial centres — the latest Global Financial Centres Index published by London think-tank Z/Yen and the China Development Institute. The report said that the main EU contenders for post-Brexit London spoils, namely Frankfurt, Dublin, Paris and Amsterdam, all rose in the rankings as well.
All the same Ireland faces other challenges in attracting Asian businesses. Asian banks and financial firms tend to prefer proximity to their big manufacturing clients, which makes relocating from London to cities on continental Europe more likely. Also, Ireland’s perceived infrastructure deficiencies relative to other countries in the Organization for Economic Cooperation and Development meant it ranked only 24 in the latest World Economic Forum competitiveness rankings, and 11th out of the 28 EU member-states.
Although some Asian banks are shifting part of their operations out of the U.K., other businesses are not necessarily following. Indeed, some Asian companies have announced investments in the U.K. since the vote, including Nissan and Toyota, two Japanese carmakers with factories in England.
British opposition politicians claim that Prime Minister Theresa May offered the carmakers so-called sweetheart deals to secure these investments. Regardless of any one-off inducements, carmakers have told the British government that they would need access to the European single market in order to continue to expand in the U.K.
Asked about its investment plans in the U.K. post-Brexit, Nissan said that it “continues to work with the UK government to ensure the company’s long-term success and investment in the UK.”
But the terms of Brexit are yet to be decided and London is at odds with the rest of the EU over the upcoming negotiations. And it is this lack of clarity that has pushed investors and businesses to set up bases in Europe to keep their options open.
“We are working closely with regulators to ensure that we reach a solution that is in the best interests of our clients — this may mean that we look to establish branches of the new subsidiary within Europe, and Paris is an attractive candidate,” said Laura Brooks, an MUFG spokesperson.
Source : Nikkei Asian Review