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Taking the lead in the new Europe.

FOR MOST OF ITS HISTORY, THE absence of a sophisticated industrial infrastructure has kept Ireland unblemished by foundaries, mills and smokestacks. Consequently, tourists have flocked to Ireland in droves to revel in its splendid scenery. Now the picturesque landscape is luring captives to Dublin as well.

In 1991 Dublin announced it had secured more than 51 captives. At the current rate of growth, it may soon overtake Luxembourg, the leading European captive domicile, which has about 161 captives.

American companies with captives domiciled in Dublin already include Hewlett Packard, Wang Laboratories, Western General and United Technologies Corp. Dublin boasts twice as many German company captives as Luxembourg, and approximately six Japanese company captives are domiciled there as well. A latecomer to the captive scene, Japan is viewed as a fertile source of potential captives.

Chiefly responsible for Dublin's success as a domicile are its maximum tax rate of 10 percent on premium and investment income, Ireland's double-taxation agreements, and the fact that Dublin is the only domicile in the European Community that permits direct writing. Ireland's double-tax treaties are appealing because dividends paid from Dublin captives to their treaty-country owners may receive up to a 100 percent exemption in the receiving countries. Owners of Dublin captives who benefit from a double-tax treaty also do not have to pay Irish witholding tax.

Moreover, since most of the countries with which Ireland has double-tax treaties also have tax-sparing clauses, dividends can be repatriated almost tax-free. Although the terms of the United States's tax treaty with Ireland do not provide for such an exemption, a U.S. owner of a Dublin captive can, in effect, set up a subsidiary in a country that does have a tax-sparing clause with Ireland.

Hugh Rosenbaum, a principal of Tillinghast, is not so sanguine about Dublin's tax applications, particularly their benefits to U.S. captives. "Americans may not go for the 10 percent income tax. It is better than Luxembourg at 40 percent, but not as good as Bermuda or Guernsey. Then there is the short-term aspect of the advantage: it ends in the year 2005," he says.

However, Frank Ascolillo, Wang's director of risk management, says, "while Bermuda is tax-free, under subpart F of the Internal Revenue Code, if the captive is owned by an American parent its income is treated as regular revenue, wherever it arises, and taxed at the rate the corporation pays. In Dublin, it is 10 percent maximum."

According to Peter Byrne, vice president of Ireland's Industrial Development Authority, corporate tax rates range from 35 percent in the United Kingdom to roughly 60 percent in Germany.

Roger Gillett, senior vice president for Johnson & Higgins Co.'s global captive management group, says his company's Dublin business is composed of U.S. corporations with operations in Europe and European companies. Tax considerations are less important for U.S. corporations than for European companies, he says. Taxes may be an issue for Canadian companies since they can get favorable tax treatment in Barbados. A more compelling reason for companies to domicile in Dublin, according to Mr. Gillet, is the European Community directive that says European Community-domiciled captives may issue policies anywhere within the Community.

Reeling from high unemployment caused by the loss of its industrial manufacturing base, Ireland's Industrial Development Authority sought to cultivate white collar jobs by offering a 10 percent corporate tax rate to financial services companies that agreed to locate in a 27-acre waterfront complex adjacent to a rundown section of Dublin. Dubbed the International Financial Services Center, the site received the blessing of the European Community in 1987.

The Community agreed last year to extend the special tax rate beyond the year 2000 to 2005. However, beginning in 1995, any newly established companies would be subject to Ireland's 40 percent corporate tax rate. In addition, although Ireland's captive industry is still in its infancy, the country is no stranger to the insurance business, employing 10,000 people outside the center.

Pulling up Stakes

IN FEBRUARY 1991, Seagram Co. Ltd., a manufacturer and distributor of beverages, pulled up stakes in the Bahamas and formed a direct writing captive, called Gulfstream Insurance Ireland Ltd., in Dublin. Gulfstream handles worldwide risks of various Seagram affiliates. Donald Davignon, director of risk management for Seagram, says the Channel Islands were not seriously considered because they were not members of the European Community. Although he noted the distinct tax advantages of the International Financial Center, Mr. Davignon conceded that the 10 percent is higher than the zero tax Seagram is subject to on its Barbados captive. In addition, a double-tax treaty between Canada and Ireland allows profits to be repatriated without attracting additional tax.

The review process was intensive, says Mr. Davignon. "We are now a fully admitted insurance company, writing only non-Irish business."

In July 1991, Wang Laboratories followed suit and became Dublin's first U.S. captive. According to Mr. Ascolillo, the company already had captives in Bermuda and New Hampshire but wanted direct access to the European Community. "Direct writing drives you to employ more loss prevention techniques and reduces premium costs from 20 percent to 30 percent," he says, adding that "to cover risks in Europe, you have to be part of the European Community. Dublin gives you a tremendous opportunity to be legitimized throughout the entire European Community."

Needed Feedback

THE APPLICATION PROCESS for Wang Laboratories was not difficult. Mr. Ascolillo says the company looked at Guernsey and the Isle of Man, but those domiciles had "higher capitalization requirements." Pointing to Dublin's "sophisticated market," Mr. Ascolillo notes, with companies like BMW and Gambro owning captives there, "you have feedback when you need it."

According to Brian Hall, chairman of Johnson & Higgins' global captive management group, "Dublin has the advantage for those who want to issue policies within the European Community." Mr. Hall notes, however, that "there is still a sizable reinsurance market to go around," and Dublin will not necessarily dominate the European captive market. The sign of Dublin's maturation as a domicile will be an expansion of reinsurance captive activity to include direct writing in the European Community, Mr. Hall adds.

The application process to set up a captive is slower in Dublin than in other domiciles. It can take from three to four months to get an insurance license and tax cerificate because Dublin captives are governed by Ireland's general insurance law, and captive companies must pass muster just like a prospective insurer.

On the other hand, in accordance with European Community policy, captive reinsurers must fulfill just two requirements: They must notify the Department of Industry and Commerce that they are carrying reinsurance, and they must file accounts with the Registrar of Companies.

Sam Adler is a New York-based freelance writer.
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Dublin, Ireland, as a captive insurance company domicile
Author:Adler, Sam
Publication:Risk Management
Date:Apr 1, 1992
Words:1121
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