Scenario 1 

It’s July 2026 and Ireland has just assumed the rotating presidency of the EU. The key issue for the Irish presidency will be negotiating the terms of the application for entry by the United Kingdom of England and Wales.  The Liberal party’s landslide victory has given it the mandate to bring England and Wales back into the EU where it would join the independent Scotland and a united Ireland as full members.  The separation of Scotland from the UK which happened in 2020 and the reunification of Ireland following border polls triggered by the Good Friday Agreement in 2021 are old memories now.

Ireland has warmly greeted a surge in migration from continental Europe taking advantage of its high-tech green economy and unrivalled opportunities for rural community-based yet connected living in a temperate climate. The new arrivals will further boost the State’s finances and improve our ageing demographics. Both the migrants and locals love our modern housing stock which Ireland achieved through its enlightened planning and building programme which ran from 2020 to 2025. A full 40% of workers in Ireland are self-employed, operating by choice as contractors and achieving a blissful work/life balance in revitalised rural towns.

New US President Mark Zuckerberg is about to visit to mark the 15 year anniversary of the establishment of Facebook’s Irish operations. He will also sign a major series of agreements between the US and EU underpinning a multilateral consistent approach to corporate tax and, separately, the use of big data to enhance security by identifying and remediating areas of social deprivation which could give rise to the type of unrest which lead to the epidemic of terrorism experienced in the West from 2018 to 2020.

Or

Scenario 2

As Ireland assumes the EU presidency in July 2026, its sole task will be to oversee the final dissolution of the Union.  In the UK, Prime Minister Farage has just announced legislation banning migration from Ireland and deporting those who arrived in the last 3 years as the exodus from a depressed Ireland has resulted in a wave of anti-Irish sentiment in the UK exacerbated by renewed violence from nationalists and unionist extremists from Northern Ireland.

In Ireland, there is some hope that President Pence will permit a larger than usual quota of Irish migrants enter the US anxious to take up manufacturing jobs in the rust belt and happy to pay the 15% special tax on remittances of income to foreign jurisdictions. Ireland’s main employer, the National Interest Management Agency (NIMA) is considering a scheme to make the west of Ireland more profitable for farming by taking all the stones out of the fields to build roadside walls. However, it is likely that a series of strikes by the truck drivers employed by NIMA will frustrate this. Meanwhile in Dublin, the short-lived boom caused by the relocation of Russian companies to Ireland attracted by the special 1% tax rate has ended following a directive from President Putin that such enterprises must now be established in the western Russian province formerly known as Ukraine. 

The wall around Afghanistan, Syria, Iraq and Iran is 60% complete. It remains to be seen whether the scheme of deducting the cost of building the wall from the permitted oil exports will be effective.

Conclusion

So which is it to be? As ever, the outcomes are determined by the choices made by people and politicians now. Will short-term, narrow self-interest prevail over a medium term collective approach?  We will see in 2026 but the direction will likely be set in 2017. Read on to see what our partners see coming.

However, the decisive result (8:3 of the full 11 judge panel) may have limited political fallout in practical terms, given the position taken by Theresa May last week when she confirmed that the UK Parliament will have a vote on the terms of any Brexit deal negotiated. The likely outcome is a short-form Act, although the political theatre will no doubt be interesting.  

However, buried in the detail, there are some interesting points. First, the court proceeded on the assumption that, once served, the Article 50 notice is irrevocable. This point was conceded by the UK Government.  The reason for this concession was primarily political, as the legal question of whether or not the notice is revocable is a question of European law which would have to be decided by the Court of Justice for the European Union (CJEU). It would not be politically palatable for this UK Government to be seeking a reference to the CJEU!  

Meanwhile, proceedings have been commenced in Ireland to seek a reference to the CJEU on precisely this point.  A finding that the Article 50 notice was revocable by a Member State serving it, would change the negotiating dynamic. The UK could then, theoretically, say if it did not like the exit terms offered that it would revoke the notice and remain a member of the EU after all. Any such volte face would require a profound change in the political climate, but stranger things have happened. It remains to be seen whether, and at what speed, these Irish proceedings will progress.

The other point of Irish interest is the treatment of the various cases commenced in Northern Ireland. The court found that it did not need to express a view on whether the Northern Ireland Act separately required primary legislation to authorise service of the Article 50 notice. This is because of the conclusion it reached on the main question requiring primary legislation by the UK Parliament. 

However, the court unanimously rejected the argument that the terms of the Northern Ireland Act required the consent of the Northern Ireland Assembly to any withdrawal from the EU. This view flowed from the clear terms of the Northern Ireland Act itself, which gives a right to the people of Northern Ireland to decide by poll whether they should cease to be part of the United Kingdom and form part of a united Ireland, but does not give them any rights in relation to membership of the EU.

The court also went on to hold unanimously that the Sewel Convention on the interaction between the UK Parliament and the devolved Assembly in Northern Ireland did not create legally-enforceable obligations because it was a convention only. The Sewel Convention provides that the UK Parliament “would not normally legislate” with regard to devolved matters except with the agreement of the Assembly.  The devolution legislation stipulates that the devolved government of Northern Ireland must not act in breach of EU law, and therefore a change to that position (by withdrawal from the EU) is probably fairly regarded as legislation with regard to devolved matters. 

However the court’s view is that the consequence of ignoring the Sewel Convention by the UK Government must be political and not legal. It will be interesting to see the political consequence in Northern Ireland if the UK Government decides simply to ignore the operation of the Sewel Convention or contend that this is ‘not a normal’ situation.

Perhaps the most pointed comment in the majority judgment was the reference to proceedings before the House of Lords Select Committee in the period from 2009-2011. In its twelfth report, the Committee included the following recommendation:

“Because of the sovereignty of Parliament, referendums cannot be legally binding in the UK, and are therefore advisory. However it would be difficult for Parliament to ignore a decisive expression of public opinion”.

The UK Government’s response, as recorded in the Committee’s fourth report of the session in 2010/2011 (then David Cameron’s Government), was:

“The Government agrees with this recommendation. Under the UK’s constitutional arrangements Parliament must be responsible for deciding whether or not to take action in response to a referendum result”.

First came smartphones. We were hooked. Then came a vision of smart meters, smart homes, smart cities, intelligent utilities, ubiquitous broadband and 5G, Netflix anytime anywhere, driverless electric and compressed natural gas cars, remote working and virtual currencies. A gigabit society – a glimpse of a new super-connected and greener digital world. 

Irish and EU governments have set their sights on delivering this vision by 2020 and beyond. In 2017, we will continue to see important early steps being taken at an Irish industry, policy and legislative level to pave the way for these exciting future developments. The question is certainly no longer if, but when, an Irish smart green economy will be realised.

Amongst many industry sectors, the Irish telecoms and energy industries will be the forerunners and will continue to adapt to technological innovation and changing consumer behaviours in 2017. The nature of the internet of things and growing consumer demand for always-on services is such that conventional telecoms and energy companies are seeing increasing overlaps in their areas of activity. This trend is likely to continue in 2017. Over time, the legislative framework governing these industries will follow suit. Each industry will be faced with significant Irish policy, regulatory and legislative changes in the coming years – with early measures being felt in 2017.

A number of developments in 2016 will have important implications for telecoms and energy players in 2017 and onwards:

• In December 2016, the Minister for Communications, Climate Action & Environment launched the Report of the Mobile Phone and Broadband Taskforce.
  
  The Report is intended to identify immediate solutions to Irish broadband/mobile phone coverage deficits prior to implementation of the National Broadband Plan. It identifies short-term actions in areas such as identification and remediation of mobile phone blackspots, telecoms network planning, consumer availability of coverage information, the appointment of broadband officers across local authorities, changes to planning legislation and the enactment of legislation in respect of broadband-ready housing and developments.
  
  On the Report’s launch, the Minister signalled ambitious plans for Ireland to lead the race on 5G deployment by 2020, including by means of future ComReg spectrum auctions. 5G, the successor to current 3G and 4G mobile technology, is key to realising the potential of the internet of things, smart homes, driverless cars and mobile video consumption.
  
  Themes and actions from the December Report were reiterated in the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs’ Action Plan for Rural Development “Realising our Rural Potential” published on 23 January 2016.

• In September 2016, the European Commission published a suite of Digital Single Market initiatives including a Draft European Electronic Communications Code and 5G Action Plan.
  
  Described as a new rule book for providers of internet access and communication services, the European Electronic Communications Code will replace the existing EU and Irish telecoms legal framework and introduce regulatory changes in areas such as network investment, spectrum management, consumer protection and the regulation of non-conventional “over the top” telecoms platforms such as Skype-type applications. While implementation of the new Code is likely two or more years away, the measures signal a clear focus by EU legislators on reshaping the European telecoms legal framework.

• In November 2016, the European Commission published its “Clean Energy for all Europeans” package.
  
  This energy flagship initiate goes hand in hand with the telecoms Digital Single Market strategy. It will introduce a series of changes to existing energy legislation which will facilitate energy innovation and digitalisation as part of the move to smart homes and the green economy. Planned measures include allowing consumers to actively manage their energy consumption and to generate, store, share and sell their own energy over time (facilitated by internet connectivity). The horizon for Irish implementation of the changes is some years away but important groundwork is underway at EU level.

• In November 2016, the deadline for Irish transposition of the Alternative Fuels Infrastructure Directive passed.
  
  Aimed at promoting take-up of renewable clean transport fuels such as electricity and compressed natural gas, Ireland has taken preliminary steps to implement the Directive by consulting in late 2016 on a Draft National Policy Framework on Alternative Fuels Infrastructure. The draft framework includes proposed targets for the development of a national recharging network for electric vehicles and refuelling infrastructure for natural gas vehicles. We should expect Irish legislation in this area in 2017.

• In July 2016, the EU Network and Information Security Directive was published.
  
  With connected smart utilities come inherent cyber security risks. There have been a number of high-profile cyber-attacks on critical national utility networks. Daily attempted cyber-attacks on Ireland’s gas network system were reported in 2016.
  
  The Directive includes measures to ensure that critical national utility networks (eg electricity, gas, water, oil and transport) are safeguarded from cyber-attacks. This includes a requirement that appropriate and proportionate technical and organisational measures are taken to manage the risks posed to the security of those networks and the information systems which they use. One of the first Irish measures to implement the Directive’s proposals reported in 2016 involves the establishment of the National Cyber-Security Centre within the remit of the Department of Communications, Climate Action & Environment. We should expect further activity in this area in 2017.

Conclusion

Market uncertainties arising from Trumpism and Brexit aside, the global race to unlock the potential of the internet of things and the green economy is on. As home to thriving innovative technology, telecoms and energy sectors, Ireland will play its part. In 2017, we will see significant further early Irish steps being taken across the telecoms and energy sectors to set important groundwork for future developments in these areas.

For more information, please contact Edel Hartog or another member of our Commercial Law team.

The lowering of the Irish merger control thresholds in late 2014 prompted a significant uptick in the number of merger filings in 2015, some 78 in total. The annual average number of filings over the previous five years was 39. It is undoubtedly the case that the lowering of the thresholds has cast the net wider and that net is catching an increasing number of both domestic and ‘foreign-to-foreign’ transactions. 

These thresholds, are, however, within the cross hairs, as the general consensus is that smaller, domestic transactions, which have little or no effect on competition, are being unnecessarily caught. However, any amendment of the thresholds would require new primary legalisation. It is unlikely that such legislation will emerge during 2017.

The 2015 total - the high water mark since 2007 – would have been exceeded in 2016, were it not for the cooling effect of Brexit. The uncertainty surrounding the approach of the Trump administration towards foreign investment rules/trade deals also played a part.

2016 was a very busy year for the mergers team at the Competition and Consumer Protection Commission (“CCPC”). Six ‘media merger’ determinations by the relevant Irish Minister also emerged during 2016. A number of transactions with Irish links were notified to and cleared unconditionally by the European Commission during 2016, including the ABP Group/Fane Valley Group/Slaney Foods and McKesson/UDG Healthcare transactions on which we advised.

From the broader competition perspective, the EU Damages Directive is likely to be transposed into Irish law in the early part of 2017. On the State aid side, the Apple taxation case continues to sit in the limelight in Ireland. The Irish Department of Finance filed its appeal at the start of November 2016. It was reported that the Commission had asked for the appeal to be amended, on the basis that it was too long. It was also reported that Apple CEO, Tim Cook, declined an invitation to appear at an Irish Parliament finance committee to discuss the Commission’s ruling.

For more information, please contact a member of our Competition & Antitrust team.

Back in 1964, Bob Dylan sang “The times they are a changing”.  Fast forward to 2017 and one must wonder what this Nobel Laureate would now sing given the unprecedented changes taking place in the world, particularly those affecting two of Ireland’s main trading partners, the United States of America and Great Britain.

Ireland as a small island with an open economy which is built on international trade will always be affected by political and economic changes in the EU and the US.  We have been here in (too!) recent times; the 2008 collapse of Lehman Brothers triggering a global recession and resulting in Ireland requiring EU-IMF financial assistance in 2010.

Since then the Irish economy has performed strongly.  GDP growth for 2016 is expected to be 4.2% with forecasted growth of 3.5% in 2017, significantly higher than EU and OECD equivalents.   Unemployment at 7.3% of the labour force in late 2016 is forecasted to fall to 6.8% by the end of 2017 (down from a high of 15.1% in 2012). Gross Irish Government debt peaked as a percentage of GDP in 2013 at 119.5%.  This debt ratio is expected to have fallen to 76% by the end of 2016.

The recovery in the Irish economy has been driven by a number of key factors:

• a young, well-educated, and highly adaptable workforce with relatively stable labour costs

• a population which is pro enterprise, accepts change, and is positively focused on the future

• a progressive tax system which encourages economic growth in an environment of legal and fiscal stability

• one of the most advanced and competitive IT and telecoms infrastructures in Europe

• membership of the EU and Euro currency zone providing easy access to the EU internal market

We wait to see how President Trump’s economic plans and Britain’s triggering of Article 50 of the Treaty of Lisbon will affect the global economy and Ireland in particular.  Forecasts of immediate economic Armageddon by some commentators have proven to be misjudged and ill founded.  However, there is no doubt that there will be peaks and troughs ahead as the world adapts to a changed environment in the US and UK.

Looking forward, we believe that there will continue to be strong interest in Ireland from multinational companies, whether through organic growth (foreign direct investment) or by acquisition of indigenous Irish companies.  IDA, the Irish State body which is responsible for inward investment recently announced that the pipeline of foreign companies wishing to establish or expand in Ireland was promising for the first quarter of 2017.  The Investec M&A Tracker is also forecasting an increase in M&A activity during 2017, with one key factor being the continued acquisition of Irish technology companies by international trade players or technology focused private equity. Some commentators have also expressed an expectation of increased capital markets activity in the US which, if realised, should have positive knock-on effects for Ireland in terms of availability of funds for investment and acquisitions.

These forecasts are consistent with our own expectations. During 2017, we anticipate increased activity, particularly in the following sectors – IT & Telecoms, Life Sciences, Energy and Food/Food Services.    In the short term, Brexit is likely to influence decision making in favour of Ireland as a location for US multinationals. We also expect some UK companies to consider acquisitions in Ireland as part of a post Brexit strategy.

Ireland has shown in recent years that it can adapt to the challenges presented by a changing world economy whilst continuing to attract businesses to Ireland.  We expect this positive trend will be maintained during 2017.

For more information, please contact Martin Kelleher or another member of our Corporate team.

Overall, the objective of the reforms is to promote early settlement and reduce the time to resolution. Most of the changes are modelled on the successful processes utilised by the Irish Commercial Court since 2004. However, there have been some impediments to resolution which will hopefully be resolved during 2017.

Two separate sets of amendments to the Rules of the Superior Courts were introduced in 2016. One addressed pre-trial case management and the other, the actual conduct of trials. Collectively they sought to

• Create the legal basis for the flexible and proportionate application of case management processes to most disputes in Ireland
• Mandate the exchange of expert and factual evidence
• Mandate pre-trial conferences
• Streamline the use of experts at trial and require a degree of cooperation between them
• Manage the length of pleadings and trials

While the rules on the conduct of trials, which came into force in October 2016 are in operation, the rules regarding pre-trial case management have been postponed due to the lack of judges available to case manage  High Court proceedings; the central tenet of the new pre-trial rules. 

The shortage of judges has become a politicised issue. In late 2014, a Court of Appeal was interposed between the High Court and the Supreme Court. While this was a development aimed at reducing the length of time it takes to deal with High Court appeals, a short-term consequence has been the promotion of a considerable number of High Court judges to the bench of the Court of Appeal, denuding the High Court bench of many experienced judges. 

Over the course of the last two years, a number of new High Court judges have been appointed to replace those promoted judges. However, that flow of new judicial appointments has been interrupted by an objection by a government minister to any new judicial appointments until the establishment of a new and reformed judicial appointments body, the terms and membership of which are still subject to political agreement. 

This is the issue which has led to a shortage of High Court judges mentioned above which, in turn, has led to the President of the High Court postponing the introduction of the case management rules. However, it is expected that the issue will be resolved in 2017 allowing the case management rules to be implemented alongside the conduct of trial rules which now apply.

Conclusion

None of these issues have materially affected the orderly running of the Commercial Division of the High Court which continues to hear business disputes with a value of more than €1 million. In such disputes, the processes remain swift and the use of mediation is also widespread. Most significant businesses in Ireland would avail of the Commercial Court for dispute resolution given the process efficiency enjoyed. However, those such as banks and insurers which have a high volume of litigation falling outside the remit of the Commercial Court are more impacted by the delays to the reform process. 

For more information, please contact Richard Woulfe or another member of our Dispute Resolution team. 

Up to 162 million people engage in independent work in the US and EU. Independent work is defined as work which:

1. has a high degree of autonomy
2. is paid for by task, assignment or sales
3. is one where the relationship between worker and client is short term in nature

Many independent workers depend only on themselves to generate income – they sell goods, they rent rooms or they blog. Others provide services to third parties as freelancers, consultants or independent contractors. 

The benefits of the independent work model for organisations are easy to see – independent workers provide headcount flexibility and easy scalability for organisations, the use of digital delivery platforms can mean reduced costs and the availability of, and access to, experts can result in better quality. For individuals, the model lets them do what they do best, when and how they want to do it – the epitome of the work-life balance. 

All of that said, there has been much public debate of late around the use of independent workers. The work model has created negative headlines for Uber drivers and Deliveroo couriers and, in particular, their fight for union recognition and workers’ rights in the UK. The debate, and indeed the general concern, tends to relate to lower quality work, the lack of job security, the lack of any form of guaranteed wage and indeed the lack of the most basic employment-related protections.  

This independent work model challenges the traditional concept of the employer-employee relationship but approximately 70% of independent workers choose to work as independent workers. The remaining 30% would prefer traditional jobs or are financially strapped and do supplemental independent work out of necessity rather than choice. The fact remains, however, that 70% choose independent work over traditional jobs. Indeed, the figure in the UK is actually higher at 74%.

In Ireland, there are a number of ways in which organisations can engage independent contractors as fixed term or specified purpose employees, as part-time employees and/or as agency workers. Independent workers tend to provide their services as self-employed contractors, either directly or via a special purpose vehicle, usually a limited liability company.  The benefit from an organisation’s perspective is that these individuals are not employees in the traditional sense of the word - they can be engaged and terminated at will, subject to any contractual agreement as to notice, and they are responsible for managing their own tax and social insurance affairs. The primary risk for any organisation engaging contractors is that those contractors could be deemed to be employees of the organisation and be entitled to the protections of employment law. Furthermore, a misclassification of self-employed contractors can give rise to significant tax and social insurance liabilities for an organisation.

There is no doubt that the number of independent workers across the globe is on the rise. McKinsey say that 14% of surveyed individuals either not working or employed in traditional jobs would like to become independent earners. The world is changing, organisations and individuals are changing and traditional workplace norms are being challenged. Will we move with the times and embrace independent working or will we fight the change in favour of protecting age-old employment rights which are rooted in an economy which no longer exists?

For more information, please contact a member of our Employment Law & Benefits Law team. 

The role of a company director is an interesting but onerous one. It may seem that with the commencement of the Companies Act 2014 (the "Act") that the responsibilities of the role have increased, which to some extent may be true. However, while the Act has introduced new provisions that affect directors and the scope of their responsibility, the Act has also clarified a lot of the law relating to directors. This helps those holding the position to understand exactly what the law requires of them.

Examples of what is new for directors and why these changes are good include:

• Codification of fiduciary duties: The Act has written the fiduciary duties of directors into law. The principal effect of doing this is that there is now a clear statement of the standards of conduct that the law requires of directors.
  
  
• Directors’ compliance statement: The Act requires the directors of PLCs and certain large companies to annually confirm that policies and arrangements have been put in place, and reviewed, so that the company can achieve material compliance with certain company and tax law obligations.  While on first glance this may appear to be a particularly burdensome obligation, the directors’ compliance statement is actually proportionate in nature.  It is not a blanket confirmation that the company has complied with its company and tax law obligations but a statement that measures are in place so that the company can achieve compliance with certain of its more onerous obligations.  The statement is also a “comply or explain” requirement, meaning that the measures don’t have to be in place but if they are not in place the directors must explain why.  It has been our experience that companies of the size required to comply with this obligation have these measures in place already.  This requirement of the Act has facilitated the proper documenting and review of this process thereby enhancing the company’s governance practices.
  
  
• De facto and shadow directors: The Act defines de facto directors for the first time so that there are now statutory definitions of both de facto and shadow directors.  The Act also implicitly acknowledges that a body corporate can be a shadow director.  Clearly defining what makes someone a de facto or someone or something a shadow director and by stating that the duties set out in the Act as applying to directors apply equally to de facto and shadow directors, can only assist boards of companies in conducting their business in the manner envisaged by the law and in line with best practices in corporate governance.
  
  
• Directors’ loans: The Act provides an incentive for directors to ensure that any loans they make to a company or any loans made by the company to them, in accordance with the requirements of the Act, are properly documented.  Where these loans are not documented, company favourable (but rebuttable) presumptions are made that the loans in question are, when made to the company a gift or interest free, unsecured and subordinated and when made by the company, repayable on demand and bearing interest at the appropriate rate.
  
  
• Directors in default: The Act goes into some detail on directors’ responsibilities and defines “in default” in the context of sanctions specified in the Act in respect of officers. The Act also classifies the offences under the Act in respect of which a director can be prosecuted. The clarity provided by the Act in this regard again assists directors in understanding the standards of conduct that the law requires of them and the consequences for them of the breach of those standards.
  
  
• Company secretary:  Directors are now required to ensure that the secretary has suitable skills to maintain the records required by the Act.  Again this requirement can only serve to enhance the corporate governance structures within a company.

Conclusion

When it comes to matters of corporate governance, clarity, and particularly statutory clarity, can only serve to enhance compliance. When it is easy for those in a position of responsibility to understand exactly what is required of them, it is easier for them to actually comply with those requirements. The provisions of the Companies Act 2014 that, on first glance, may appear to add to the onerous responsibilities of directors, may not, on further examination be an imposition only; they are measured, governance enhancing provisions that also serve to allow directors to perform their role within clearly prescribed parameters that can also protect them.

For more information, please contact Claire Lord or another member of our Corporate Governance and Compliance team.

The fact that the investment funds industry in Ireland continued to grow in 2016, despite the major headwinds it faced, is impressive. Initially, the uncertainty leading up to the Brexit referendum resulted in fund launches being put on hold. Then the unexpected referendum result led to immediate and significant market volatility, a dramatic fall in the value of Sterling and major fund redemptions.

Brexit

Make no mistake, the Brexit result is not good news for the Irish economy generally. And the loss of a close partner at the EU negotiating table will be acutely felt. However, there are areas where Ireland’s infrastructure can facilitate further close co-operation with Britain and one of those areas is the investment funds industry.

The British Prime Minister’s recent assertion that Britain will be negotiating for a hard Brexit potentially creates more complication for UK-based managers of investment funds.  Their future ability to passport their services throughout the EU looks to be diminishing, reinforced by the confirmation that a Norway-style membership of the EEA single market will not be considered by Britain. How will these managers continue to manage funds and sell them within the EU?

Ireland has a solution. Irish fund structures will continue to enable UK-based asset managers to manage and distribute EU UCITS and AIF products, without the need to relocate their operations out of the UK.  This point is illustrated by the fact that Irish funds are already extensively used by US managers and other non-EU managers for distribution throughout the EU.

The Irish funds industry has always been and will continue to be a strong partner of UK-based asset managers. The fact that the Irish funds industry has the experience in structuring and establishing UCITS funds with strong governance structures based in Ireland that allow delegation of investment management to UK-based managers, will continue to facilitate the establishment of UCITS funds which can be managed out of the UK and passported throughout the EU. 

There are also well-established AIFMD options in Ireland for UK based managers, ranging from self-managed AIFs, to AIFs appointing experienced third party AIFMs, to the establishment of the UK manager’s own AIFM in Ireland. Investors are very familiar with these models and because of Ireland’s proven track record in the industry, we look forward to continuing our successful partnership with the UK asset management industry throughout 2017 and beyond.

Central Bank Preparedness for Brexit

Key to the success of the Irish investment funds industry in the wake of Brexit, will be the role of the Central Bank of Ireland in terms of its preparedness for a potential increase in licensing applications.  It is encouraging to note recent statements by Mr Gerry Cross, the Central Bank of Ireland’s Director of Policy and Risk. He reaffirms that, while the outcome of the Brexit referendum may not have been expected, the Central Bank were well prepared for it when it happened. He also dismisses questions over the Central Bank’s capacity to deal with a potential large volume of applications.  He clarifies that the Central Bank is committed to meeting the relevant challenges, including through an increase in staff, both where additional numbers are needed and where contingency numbers may be needed. 

Product Enhancement

Private Equity LPs

On the product side, we look forward to the publication in 2017 of the Irish legislation to modernise Ireland’s Investment Limited Partnership regime.  The new legislation will focus on four key areas:

• the introduction of umbrella funds as investment limited partnerships;
• reinforcing the limited partnership concept by ensuring that limited liability operates in a manner similar to other jurisdictions;
• ensuring that there are no unnecessary burdens on general partners arising from AIFMD; and
• providing that the information publicly available on such funds, their managers and investors is consistent with other jurisdictions. 

The introduction of this legislation will greatly enhance Ireland’s attractiveness as a domicile for regulated private equity funds to coincide with the increase in non-bank financing in Europe and the initiatives being introduced under the EU’s Capital Markets Union initiative.  It also builds on Ireland’s recent tax changes relating to investment limited partnerships which confirms their tax transparency. This type of tax transparent partnership has typically been the preferred form of fund vehicle for private equity investment.

Loan Origination Funds

Another encouraging development is the extension of the loan origination fund regime in December 2016. The previous restriction on Loan Origination QIAIFs investing in non-loan assets has now been relaxed to also allow such funds to invest in debt and equity securities of entities or groups to which such funds lend or which are held for treasury, cash management of hedging purposes. This change comes into effect in January 2017 and is expected to encourage more loan origination funds to be established.

Conclusion

The big issues for consideration will include the ongoing implications for defined benefit scheme funding on the back of a protracted low bond yield environment and swings brought about by the prospect of Brexit. These may settle as the reality of precisely what Brexit means begins to take shape and the implications become clearer. It is very likely that policy changes under the new Trump administration in the United States will also have an impact on markets.   

Back home, the Minister for Social Protection, Leo Varadkar, has indicated that he is determined to grasp the nettle of pension’s coverage in Ireland and has indicated his aim of creating a universal pension scheme.  During the latter part of 2016, the Pensions Authority commenced a consultation process with all pensions’ stakeholders. The purpose was to review current pension provision and seek input on a number of proposals for the future of pensions in Ireland. It is expected that the outcome of the consultation will be available in early 2017. Among the issues on which views were sought were experience and qualification requirements for pension trustees, an authorisation process and closer supervision of pension schemes, and rationalising of pension scheme numbers.

Media reports during December 2016 and early 2017 flagged a number of areas for possible pensions activity and potential change. In particular, the announcement of Independent News & Media’s intention to cease contributing to its defined benefit scheme and certain reports exploring the impact of discussions on public sector pay of the value of public sector pensions were greeted with considerable negative media attention. There was also a suggestion that striking members of An Garda Síochána should not accrue pension entitlements. Since the New Year began, Minister Varadkar is widely reported to have identified possible changes in relation to compulsory retirement ages and plans to offer larger State pensions to those who work longer. Labour Party TD, Willie Penrose, has drafted a bill to amend the Pensions Act in relation to the winding up of an underfunded defined benefit pension scheme by a solvent employer. We understand the plan was to introduce the bill when the Dáil reconvened. If such measures are eventually passed, they will certainly provide pause for thought among solvent employers who might be considering a defined benefit scheme wind up and to certain parties considering corporate transactions.

Clearly, serious thought is being given to pensions issues and, in certain quarters, to the value and cost of providing public sector pensions, an issue that has remained largely undiscussed for years. Given the amount of publicity surrounding these issues, it may prove impossible to ignore them for much longer and 2017 may be the year where they are actually moved to the next level.   

In short, the big ticket items for pensions in Ireland in 2017 are bound to include any one or more of the following:

1. Publication of the recommendations of the Pensions Authority’s consultation;
2. Progress of the Labour Party bill or, alternatively, consideration of and responses to recent calls for protection from solvent employers winding up defined benefit pension schemes;
3. Further discussion following on from the Horgan Review of the Gardaí and comments made by the Minister for Public Expenditure relating to the value of public sector pensions and the implications of that value in relation to public sector pay; 
4. The extent or otherwise to which the Minister for Social Protection progresses his stated intentions to create a universal pension scheme and possible other reforms including those following the Pensions Authority consultation; and
5. Finally, the EU IORP II (Pensions) Directive was published in the Official Journal on 23 December 2016 and came into force on the 12^th January 2017.  Member States now have until 13 January 2019 to transpose it into their national laws and the 2003 first pensions Directive will be repealed from that date.  Thoughts will now turn to the transposition of this Directive during 2017 and beyond.

Conclusion

2017 looks set to bring change or at least much conversation around a number of pensions issues which have been bubbling for a time. We will keep our readers updated as matters progress. In the meantime, to learn more about how the proposed Labour Party bill and other prevailing pensions issues could potentially affect your business in 2017, please contact Peggy Hughes, Stephen Gillick or your usual MHC contact.

There has been much discussion recently about a post-truth environment and yet, as far as real estate goes, we are still in a pre-truth condition. This is because we never have all the facts, we do not fully understand and cannot predict all the consequences of policy decisions and market forces. Striving to obtain complete information to enable fully informed decision making is both impossible and essential.  There is no better example of this than the Irish residential real estate market.

We have a housing crisis, with homelessness rates continuing to rise despite the economic improvements we are achieving as a country. The main real estate challenge in Ireland for 2017 is the same as that which faced us in 2016, namely housing. 

Everyone wants to solve the problem, but there is no consensus on how best to do so. So what should we do?

The State needs to be more active in housebuilding.  When the country had no resources in the 1930s and the 1950s local government built tens of thousands of homes. During the boom years, the private sector was left to do everything with little in the way of Government action. We can borrow at historically low rates. This will not last forever, so we need to grasp the opportunity while it still exists. After all, we mortgaged our future to bail out foreign buyers of Irish bank bonds – we should do likewise for our fellow citizens.

Market changes are helping – so let them. Recent years have seen an increased professionalisation and internationalisation of the Irish real estate market. 2017 will see private equity funds continuing to reduce their presence to be replaced by more long-term holders of real estate assets such as REITs and pension funds, both national and international.  New asset classes have emerged such as student accommodation, multi-family developments and well-planned town centres. High demand for top quality hotels in key areas will mean a considerable number of transactions in the coming year. In 2016, we changed our tax law for real estate vehicles – we should not repeat that tinkering in 2017.

Proper standards, not gold plating. Poor construction leads to increased regulation, but the pendulum swung too far and failed to address major issues, such as self-certification. Some welcome changes occurred in 2015 but we need a debate about what we are trying to achieve and how to produce reasonable accommodation with laws that are actually enforced rather than regulations which are very expensive to comply with and yet produce little in the way of practical benefits for occupiers.

During 2016, Minister for Housing, Simon Coveney produced a strategy for dealing with housing and homelessness. He followed this up with a detailed strategy for the residential rental sector, including analysis with specific steps and timeframes. 

Media coverage has concentrated on the 4% cap on increases in rents in newly created rent pressure zones. Cork city and Dublin are the first areas to have been designated and the commuter belt around Dublin will probably be included by February this year. This misses the most important point, which the Minister acknowledges in his introduction to the report that the main issue is providing more housing units. The catchphrase for what is key for real estate investment is “location, location, location”. For Ireland, the chant should be “supply, supply, supply”.

Some market participants, such as David Ehrlich, CEO of IRES, an Irish REIT, have pointed out that we need to focus on how to make the construction of new housing units more economically viable.

More needs to be done and the current Minister is open to listening and making changes which he considers to be appropriate. The challenge will be to have regulations at a level which produce high-quality accommodation while not placing too high a burden on those who invest in and finance the developments. Investors need predictability on regulation and taxation. Owners of vacant properties need to be encouraged to become landlords. Derelict sites should be acquired and developed. The State, through direct ownership and the National Asset Management Agency, controls many buildings and tracts of land. As well as encouraging others to better utilise their resources for the good of all, the State needs to act as well.

And let’s remember the admonition of a great Irishman, Edmund Burke - “It is not what a lawyer tells me I may do; but what humanity, reason, and justice tell me I ought to do”. 

For more information, please contact Kevin Hoy or another member of our Real Estate Law team.

It is almost 20 years since Ireland announced the introduction of a 12.5% corporation tax rate for trading income. In 1997, the Irish standard rate of corporate tax was 36%, just marginally above the current US Federal rate of 35%. With the UK moving towards a corporation tax rate of 17% and Trump proposing a 15% corporation tax rate, perhaps the only major surprise on international tax rates has been the time it has taken for the governments of the world's major economies to realise that a high corporate tax rate inhibits growth.

For Ireland's open economy, the change in other countries' tax rates and multiple other changes to the international tax environment provide opportunities for multinational groups to review existing operating structures and realign their businesses with the new international tax environment.

Brexit and the Trump Effect

As the UK moves towards triggering Article 50 and the US political scene shifts to a Republican majority control, Ireland can expect both the UK and US to reduce their corporate tax rates. However, the mere reduction of these countries' tax rates does not mean that the business case for using Ireland as a relatively low tax rate hub is diminished. In particular, US companies will continue to need access to the EU and with Brexit looming, the benefit of using Irish corporates as a platform to transact into one of the largest trading block in the world may become even more compelling.

EU 

In mid-2016 the EU passed its Anti-Avoidance Tax Directive. One aspect will be that Ireland will need to introduce a Controlled Foreign Company ("CFC") regime by the end of 2017. CFC legislation is designed to dissuade Irish parented groups from maintaining intellectual property and passive investment income in low- or no-tax territories. It will deem certain "passive" income and gains of such offshore entities as being liable to tax in Ireland. The introduction of such legislation is likely to cause existing offshore finance and other intellectual property companies to be brought onshore to Ireland, with the consequent increase in economic activity in Ireland. Moreover, if Ireland wishes to remain internationally competitive, it should amend its laws to exempt dividends from foreign subsidies as a quid pro quo for the introduction of a CFC regime.  Such a move will increase Ireland's attractiveness as an international tax-neutral holding company location and be in line with other EU proposals. 

Of more concern to Ireland must be the EU's latest proposal for a directive (First Directive) on a common tax base followed by another directive (Second Directive) on a Common Consolidated Corporate Tax Base ("CCCTB"). The First Directive would seek to adopt a pan EU code to harmonise the tax deductions available in each Member State from each companies' taxable profits. It would restrict interest deductions, exempt certain dividends and provide enhanced R&D deductions.  However, the Second Directive looks to determine a mechanism by which profits are allocated across EU Member States having regard to three equally weighted indicia; namely personnel, assets and sales. If groups wish to maximise the benefits of Ireland's 12.5% corporation tax rate, then the establishment of major facilities in Ireland will be a pre-requisite to ensuring that other EU Member States do not have extensive taxing rights under the Second Directive. Needless to mention that Ireland will campaign strongly to avoid CCCTB but without the UK at the negotiating table, its negotiating position is significantly weakened.

OECD and BEPS 

In 2013, the OECD launched an initiative to dissuade multinational groups from using the differentiating factors of different countries' tax regimes for Base Erosion and Profit Shifting ("BEPS"). Whilst much of the initial action plans are moving into implementation phase, two key areas in relation to corporate Ireland's offering deserve special attention:

1.  Reopening of Action 1 Taxation of the Digital Economy  

The original BEPS action plan looked to change the basis of taxation of the Digital Economy. The original conclusion was to not alter the current system but this is being revisited. The latest EU CCCTB proposal, and indeed some of the US Republican proposals, also take aim at a revised approach to taxing such profits by reference to the location of ultimate sales. To maximise real benefits from an Irish presence, multinationals need to plan for major spend, research and development, and employment focus from an Irish base.

2. Multilateral Treaty

One of the key benefits of Ireland's treaty network is the ability to reduce withholding taxes on income flows into an Irish tax resident company without necessarily having regard to the ultimate recipient of such flows.  A key feature of any multilateral treaty is likely to be a limitation of benefits clause. The overriding aim of such a clause is to limit the ability to avail of reduced rates of withholding taxes under existing treaties where the ultimate recipient is not a resident of the payor or payee countries. The introduction of a multilateral treaty is likely to cause Irish recipients to suffer withholding tax on many inward payments.  Such withholding should be creditable against Irish tax but its impact needs to be modelled through.

Conclusion 

A multitude of forces is converging on a common theme for reform of the basis by which groups operating cross-border are taxed. Historic operating regimes and rulings are being challenged – the recent publication of the EU's determination of state aid in the Apple case highlights the uncertain environment that exists for businesses reliant on historic practices. 

Internationally-focused groups need to review existing structures, bring onshore that which has been generally operated offshore and consider Ireland as a base for critical mass. The only certainty within the world of change will be Ireland's 12.5% low corporate tax rate and EU membership. Major groups should commence 2017 conducting an international tax strategic review of their global operations with a view to realigning their business with the likely new international tax norms.

For more information, please contact John Gulliver or another member of our Tax Law team. 

Prospects

The UK is Ireland’s largest trading partner and therefore the Irish economy is very dependent on the UK’s success. We will be following even more closely than our European neighbours the developments over the next year including how that affects the British economy.

2016 saw a reduction in mergers and acquisitions across the UK and Ireland presumably as a result of the macroeconomic issues surrounding Brexit and the political events in the US. However, the FTSE has proved to be strong since the vote to leave and it will be interesting if this continues throughout 2017 once Article 50 has been triggered and it becomes clearer how negotiations to leave will develop. It is likely that there will be an upturn in transactional work around this time.

Additionally, the recent fluctuations in foreign exchange rates have had some effect on the markets and level of transactional activity. There is interest in UK assets from buyers in other jurisdictions where those UK assets have become cheaper, but may not continue to be so for a long time. Therefore, we expect that this interest will grow in 2017. There will be interest in UK assets from Irish buyers but also interest from the US where there is a UK-Irish business and the valuation is driven by the UK company’s share price.

The public markets have also been quiet in 2016 but we predict an increase in IPOs and public takeovers during 2017 in the UK and Ireland.

Movement of People and Institutions

Although some predicted that there would be a wide-scale movement of people and businesses out of Britain as a result of the vote to leave, that has not yet happened. It remains to be seen whether the further developments around the mechanism for leaving the EU will trigger such an exodus, but it feels unlikely.

To the extent that businesses are looking to move operations overseas Ireland is naturally one of the top choices, being an English-speaking, common law, GMT time zone, progressive jurisdiction already with strong financial services and technology hubs in Dublin and across the country. Its proximity to London and ease of travel is also attractive, as is its close relations with the US.

We think it is unlikely that the City of London is going anywhere en masse either. Dublin needs to make the most of the opportunities where operations and people need to be moved back into the EU and the Irish Government is aware of that.

New Relations

Although signs that the UK and, perhaps more importantly given the levels of foreign direct investment, the US are to become more inward looking than in recent years due to the recent political developments, Ireland may well fair better than many other countries as a result of its extremely close ties with both of those countries. Indeed to the extent that London and Dublin can work together closely with Dublin being the key ally in Europe, we expect that the tripartite relationships between the three countries grow even stronger.

We also are expecting more transactional activity between other European countries and Ireland than in the past as they look to Ireland as the only remaining English speaking country in the EU and due to its close links to the UK.

We are starting witness more interest in Ireland from Asia and the Middle East as people there are becoming more aware of what Ireland has to offer. Brexit has brought Ireland to the forefront where they are looking for a similar alternative to the UK, but within Europe.

Legislation

In 2017, we may start to see ways in which English law will start to evolve away from EU law. Irish law has tended to remain close to English law but once English law does not need to comply with EU law then marked differences could appear between the jurisdictions. We will follow with interest the posturing in 2017 around what direction English law might take.

Conclusion

2017 will be a key year in the history of the United Kingdom and will have significant ramifications for Ireland as a whole. We learned last year that nothing can be predicted and so wait with anticipation to witness what 2017 will bring.

For more information, please contact Graeme Bell in our London office.

Tax Reform

Proposals by the Republicans could radically reshape US tax policy in the next two years, with potential consequences for multinational groups with Irish connections.

The proposals are a combination of rate cuts and adjustments to the federal tax code, which will affect the fundamentals of how US corporation tax – called “business tax” in the US – is calculated. These reforms could have a dramatic impact on cross-border tax planning used by multinational groups, causing them to rethink every aspect of their corporate structures, such as supply chains, capital structures and the location of corporate earnings and operations, which in many cases is Ireland. 

The prevailing view from US tax policy experts is that the Republican Party's capture of the presidency and both Houses of Congress has shortened the odds that the tax proposals will become law. The only open question is whether President Trump will approve the Republican proposals in all their detail.

The latter point is surprisingly relevant, since it is not clear that congressional Republicans take the same view of tax policy as the president.  For example, congressional Republicans propose to cut the rate of business tax from 35% to 20%, while Mr Trump’s campaign promise was to cut it to 15%.

Both Mr Trump and the congressional Republicans agree on the desirability of repatriating the assets and operations of US companies from foreign jurisdictions, but they differ on the mechanism for implementing this.  Mr Trump proposes a “deemed repatriation” of corporate profits held offshore at a one-time tax rate of 10%, but the congressional Republican proposal emphasises a new destination-based or territorial system for business tax.

The latter proposal is the most radical, since it would permit companies to totally exclude revenue from exports when calculating their tax burden, and would prohibit them from deducting the cost of imports they purchase.  On the face of it, this operates like a value-added tax. This could be interpreted as a trade-distorting subsidy for domestic companies which would violate international commitments to avoid trade-distorting subsidies, raising the prospect of sanctions levied by the World Trade Organisation against the US.

Financial Regulation

Another area in which the incoming Republican administration has concrete plans to reshape policy is financial regulation. The massive post-recession financial regulation law commonly known as the Dodd-Frank Act has been a constant target for Republicans since it was enacted by Democrats in 2010 with negligible support from the Republican minority.

Republicans on the House Financial Services Committee, led by Chairman Jeb Hensarling (Texas), spent much of 2016 laying the groundwork for a reform effort in 2017. Chairman Hensarling’s Financial CHOICE Act, published in June, is a comprehensive compilation of the Republican Party’s priorities for financial regulatory reform.

These reforms will have ramifications for policy in Ireland and the EU. To give an example, the proposal in the Financial CHOICE Act to permit venture exchanges that are suitable for emerging companies could provide head-to-head competition for small company exchanges in other countries, such as AIM in London, TSXV in Canada and the ESM in Dublin. 

At present, a large number of companies with US leadership or US operations have found a home on AIM in London – and a smaller number on the ESM in Dublin. Such exchanges have been attractive to US companies, since they avoid the substantial regulatory burden associated with a listing on one of the US exchanges, such as NASDAQ. The new proposals would exempt newly registered “venture exchanges” from a range of US securities regulations. 

This aspect of Chairman Hensarling’s proposals poses a direct competitive challenge to the ESM and AIM. Despite its reputation as a listing venue for early-stage companies, the reaction from NASDAQ has been relatively muted. NASDAQ already incorporates a separate tier for small cap companies and operates a couple of smaller exchanges in Europe. 

Potentially, the parts of the Financial CHOICE Act that would facilitate capital formation by SMEs – such as creating venture exchanges and easing restrictions on crowdfunding – would attract bipartisan support.  Other elements of the package, such as restructuring the Consumer Financial Protection Bureau were likely to be more controversial and could take more time to pass both Houses of Congress.

Looking Forward

2017 will provide a key test for the ideas and priorities of the new Republican administration. A reshaped policy landscape in the US could present new challenges to Irish companies and international groups with Irish operations or structures.  

For more information, please contact David Mangan in our New York office.