Irish lawyers, accountants, bankers and corporate services firms generated more than €900 million worth of fees last year from debt-raising special purpose vehicles (SPVs), an area of Dublin’s shadow banking hub that has come into focus recently because of its use by Russian companies.
Irish-based SPVs paid a total of €3.3 billion in financial and professional services fees last year, the Central Bank said on Wednesday. That is the equivalent of 0.32 per cent of the some €1.03 trillion of assets held in these vehicles. Some €913 million of the fees were paid to Irish resident businesses, with €1.06 million handed over to UK firms, it said.
Section 110 of tax laws introduced in 1997 to encourage companies to set up SPVs and make the State a global financing and fundraising hub has turned the country into one of the world’s biggest locations for SPV activities. Most of the assets contained in SPVs related to pools of corporate loans, mortgages and funding vehicles linked to investment funds.
While the vast bulk of assets in Irish SPVs have little to do with the domestic economy, the sector is a major fees generator for professional services firms.
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Irish SPVs have been used by Russian-connected entities to raise about €135 billion of funding since 2005, Trinity College Dublin adjunct professor in finance James Stewart told the Oireachtas finance committee last week in a hearing that was focused on the use such vehicles by Russian entities in the past.
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The Central Bank said in March that €35.5 billion of assets held in the 33 Russian-linked Irish SPVs at the end of last year accounted for less than 4 per cent of the total contained in all Irish SPVs. Most of these are linked to entities that are now subject to EU sanctions resulting from either Russia’s invasion earlier this year of Ukraine or its 2014 annexation of Crimea.
It is understood that the assets of Russian-linked vehicles make up most of what the Central Bank referred to as “external financing” entities in Wednesday’s note. A chart contained in the document indicates that these SPVs paid as much as €20 million in fees last year.
Prof Stewart told the finance committee last week that there needed to be an EU-driven effort to regulate SPVs in financial hubs such as Dublin, given the often-arcane activities carried out by these companies.
He said that the unregulated nature of SPVs, part of the so-called shadow banking world, poses untold risks for the wider international financial sector. He said that the ultra-tax-efficient status of SPVs should be removed in the first instance.
