The System’s other Surprises.

Beware of Men in Suits bearing Tax Scams.
Ireland is a country where over recent decades the government has seen it as a sacred duty to come up with all manner of schemes and scams designed to help unfortunate rich people avoid paying their taxes. Mostly the poor Souls were given the right to put the money they would normally pay in taxes into property such as holiday homes, hotels, golf courses and so on.

The Contingent Liability

The Bes Scam

The HLCL

One company’s Experience of the HLCL

The IDA Lease.

The Contingent Liability

 

The Contingent Liability is the sting in the tail of the Irish State agencies. If for some unanticipated reason you wish to leave Ireland in the future the "Contingent Liability" is the amount of money that you will have to "repay" to the grant authority be it IDA or Enterprise Ireland.
You will note that I place "repay" in parenthesis. This is due to the method used to calculate your Contingent Liability. Lets say IDA have a grant budget of 100 million and 80 million of that comes from European funds. So your company receives its grant aid incentive from that budget then you would think that you should only have to repay the 20% that did not come from the EU. You would be wrong. They will demand full repayment as they will claim that 100% of your grant aid came from their 20% contribution!

Another interesting anomaly in this system is the way ´advance factories` are `alleged` to be used. IDA and Shannon Development have historically engaged in building so called ´advance factories`.
This mad system involves building factories before you know what you are going to manufacture. Large numbers of such factories were built all over the country in the hope of attracting industry to geographically challenged areas and many of them have lain idle for years.
The combination of the Irish Diaspora and these factories is `allegedly` a very interesting one for IDA.
You see IDA are not allowed to use EU funds as part of an incentive to attract companies from overseas to Ireland and they are not allowed to use EU funds to cover their own overhead.
But `allegedly` by using businesses owned by members of the Irish Diaspora they can use these factories to circumvent both of these regulations. Firstly they `allegedly` classify the business of a member of the Irish Diaspora as `indigenous` and so they can then use EU funds as part of the incentive to move the business to Ireland and as part of the package they offer an empty "advance factory" "rent free" for a number of years. They do in fact charge rent but the rent is grant aided. So 80% of this rent is `allegedly` then paid by the EU to IDA and later if you wish to leave Ireland you must "repay" the rent and so IDA `allegedly` get 180% of the rent figure. A very nice little `alleged` business!

Have you experienced the “Contingent Liability.” If so please use the comments link below. We will be happy to add your experience/advice to this section.

The BES

 

One such system of tax avoidance was called the BES. The BES or “Business Expansion Scheme” allowed these unfortunate individuals to put the money they would normally pay in taxes into a company instead. The idea was to encourage the rich to invest in productive enterprises.

In order for a company to be able to help such people with their tax liabilities each scheme must be approved by the relevant State agency such as Enterprise Ireland and by the Revenue Commissioners (Irish Tax Authorities.) It has been alleged that this system became a veritable business with executives from the State Agencies being courted by tax advisers to help their unfortunate clients avoid paying their taxes.
It is also alleged that executives of State Agencies put pressure on companies to facilitate such investors. The allegation is that grant aid and even the honouring of agreements became subject to helping some unfortunate rich people by letting them invest in your company.

The HLCL

 

The Hard Line on the Contingent Liability.
This was a policy that became official policy when Ms Harney became the responsible Minister for Enterprise, Trade and Employment 1997 but things had been moving in that direction prior to her arrival probably due to the, by now, inflating Celtic Bubble.
The Policy was motivated by a common Irish urban myth which goes along the lines: “These foreign companies coming over here and getting all the grants and when they have gotten all the grants then they do a runner”. The new Minister clearly believed this myth. Indeed this myth is still generally believed by the public in Ireland today.
Anyone who has ever moved house will realize that no grant would be a motivation for moving a factory. That decision is based on location, infrastructure, labour costs, taxation and the profits that these factors can generate. In any case if a factory leaves then they must repay any grants they have received. These grants thus form a “contingent liability.”
Given that things change and markets change there had historically been a degree of willingness on the part of IDA to discuss any repayment of grants under the “contingent liability” in circumstances where it was clear that the company were not at fault. Ms. Harney’s policy was designed to remove that flexibility and to go after the money in all cases. Disastrously this was to include cases where companies were not leaving but simply had failed to “create” the number of jobs they had promised.
So an audit was undertaken and demands for money sent out. Even to companies where half the workers were Polish. Companies who were in difficulty because of the labour shortage in the areas where they had been located by IDA received demands for enormous amounts of money.

One company’s Experience of the HLCL

 

The following is an example of what the HLCL Policy in action.

This was a family owned company from Germany. They came to Ireland at the beginning of the 90’s with their aluminium casting business. IDA had asked them how many jobs they would ”create”. Not being from East Germany they did not understand IDA. They thought they mean how many people they need. So they said they needed about 140 people to make their products in the current market. Which was the truth.
Now there is a strong tradition of heavy industry and metallurgy in Cork City but IDA were under the usual political pressure to locate the business to a more politically attractive location. And so they were offered a building in a small market town in the west of West Cork. They gave them a property there saying it was worth a million Punts. The Germans did not mind the crazy valuation. They were getting it for nothing. As is their practice IDA pervert the industrial geography of the country by ignoring the science of location theory in locating this business. This town was a very nice place but only an idiot would think it is the best location in the region for an Aluminium Foundry.
IDA also told the company that people would be queuing up to work in the place for IRP 120 per week. Hard to believe now but that was the going rate in a normal factory at that time. But not in an aluminium foundry. An aluminium foundry is an environment like a coal mine or a steel works. Either the IDA people had never been in an aluminium foundry or they were having them on. So they installed their state of the art facility and straight away found that there was no queue of people to work in the place and that the wages required were double to get anybody. From day one the company was struggling to fill orders due to this labour shortage.
Forward to 1997. The company now employs about 70 people half of whom are German and Polish. Their factory in Germany has had to be kept open but they are working away. The HLCL letter arrives demanding half a million and the family hit the roof. IDA wanted half the value they had put on the building because the company had failed to "create" 140 jobs. That day the Germans decided to leave Ireland. So they left and the dispute between them and IDA about the building and the “contingent liability” continued on for years.
I spoke to a member of this family not so long ago and he explained to me in his strange German Cork accent that IDA had done him a favour as if it was not for them he never would have left Ireland. He now employs 650 people in his foundry which is now back on the contenent. Result IDA cost Cork City 650 jobs.

There was another case in Bantry and the Willy Holt story included in this site was also an example of the HLCL in action. We believe it happened all over the country. The Press did not notice. Nobody noticed. Sure there was plenty of jobs in the building bubble. This HLCL policy together with the side effects of the Celtic Bubble effectively took the strimmer to the green shoots of a true Irish Industrial infrastructure of the type found in Western Europe.
Ireland is at the edge of the European Union yet the political disease that insists on making its geographical disadvantages worse by locating factories in the most unnatural and disadvantageous locations is still prevalent. Indeed not content to sabotage our Industrial development the infection later spread to the country's administration when the decision was taken to move vital parts of the civil service to the constituencies of politicians with the necessary political clout under a so called “decentralization program”.
 

 

The IDA Lease.

 

This is the way IDA sells property. They sell a long lease but with a clause that says that the building cannot be used for an non industrial purpose. The idea of a manufacturer selling a main road IDA built factory to a supermarket and buying bigger better equipped accommodation in a cheaper location is considered sacrilege. When one company found a legal way to do this the law was changed literally overnight and the legal loophole closed. The fact that most of these units were built without the knowledge of what was going to be produced increases the likelihood that a manufacturer may wish to move. However such a manufacturer will find that the value of an IDA lease will not buy a new factory freehold. If you are going to invest in a factory premises the flexibility afforded by free hold far outweighs any IDA “deals” on an IDA lease. IDA “deals” always have a sting in their tails in the form of obligations on employment levels and/or contingent liabilities. IDA property related contingent liabilities are notorious. Avoid this at all costs.

Do you know of or have you experienced another Irish State Agency “Surprise”? If so please use the comments link below. We will be happy to add useful warnings to this list.