Buried in the new finance bill is a measure designed to help kick-start the IFSC back into life as a finance investment magnet – the amending of tax laws to enable of Shari`ah-compliant financial transactions (as noted in the Irish Times and Islam Online). According to Islam Online, ‘Islam forbids Muslims from usury, receiving or paying interest on loans. Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork. Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships. The new provisions will treat returns on Shari`ah-compliant products as interest for taxations purposes. The measure covers a range of credit transactions and allows for the creation of investment securities similar to sukuks (Islamic bonds).’ Quite how this will work is a little unclear, as the Irish Times notes, as Sharia law ‘bans the charging and paying of interest’ and ‘Irish tax laws that cover financial services … are based on interest payments and earnings.’ As noted above, it seems the profits will be treated as interest as Sharia law ‘does allow certain types of credit sales which allow lenders, such as banks and financial institutions, to earn a profit on the amount that they have loaned, or arrangements where lenders share in the assets involved, and assume some of the risk and some of the profit.’ The amendments will cover wholesale financial markets, but might be extended to retail banking.
The idea is to ‘make Ireland the location of choice as firms rebuild in the aftermath of the global economic crisis,’ according to Brendan Kelly, the Director of the IFSC. Quite why anyone would consider Ireland the location of choice for dealing with finances after the fiasco of the banking crisis and the various strategies to deal with it is a mute question – except that we provide various convenient tax dodges and weak regulation (in a perfectly legitimate way, of course). Regardless, it seems that the move should help IFSC recover and, after the large job losses announced yesterday by Bank of Scotland (Ireland) and the closure of the Halifax branches, that will welcome news to anyone still employed in the sector.