Government planning a raid on Biddys piggy bank.

spongebob

I heard last night that the Dept of Finance is planning an Eircom windfall tax in the Finance Bill to be published shortly.

It will either be

1. An income tax / CGT hike worded in a way that ensures that shareholders resident in the state get hopped (not O'Reilly or Soros)

and/or

2. A mechanism to claw back some of the privatisation proceeds from all shareholders equally.

Both options were on the table when my source heard about it but either or both may not make it into the Finance Act. Option 1 is the most straightforward it seems. They have about 4 weeks to get the wording straight as it can be introduced at committee stage in March...but no later than that.

Option 1 was possibly to be linked to a carryover CGT loss into special Income Tax allowance for the small shareholders who were stung in 2001 ...but not all of it...and capped at €1000 (20% of €5000 of loss max ) Comms and Finance were to divvy up the rest between them. Biddy cannot manage a quota nationally and is a low political risk compared to 100's of 1,000's of disgruntled shareholders.

Then there is the next round of asset sales to be considered.

M

RainyDay

This sounds highly unlikely to me.

1) Fine Gael proposed a special tax allowance for shareholders who lost money as part of their election manifesto in 2002 and were generally laughed at.

2) How could any tax break relating to investment in a specific company be fair/legal? What about all the shareholders who lost their shirts in other high-tech or telecoms companies?

3) Shareholders who have a capital gains loss on Eircom (or any other share/asset) can already write this loss off against other capital gains - This is in the current legislation.

Ripwave

Originally posted by RainyDay
1) Fine Gael proposed a special tax allowance for shareholders who lost money as part of their election manifesto in 2002 and were generally laughed at.

No, they didn't. They proposed that they be allowed to offset that loss against their overal tax liability.

3) Shareholders who have a capital gains loss on Eircom (or any other share/asset) can already write this loss off against other capital gains - This is in the current legislation.

Which is all very well for those who had other capital gains. But the whole point about the eircom shareholders is that the vast majority of them didn't have any other shares, never mind any capital gains. So the well off people who had a stock portfolio and stock broker to manage it for them, and an accountant to do their taxes for them could offset their eircom losses, but the bus driver and the bank official and the school teacher and the pensioner who had bought eircom shares as a long term investment, and never owned any other shares were screwed, with their shares forcibly taken from them at the bottom of the market, and no way to offset that loss against the tax that they did pay.

RainyDay

Oh my heart is now bleeding for all those 'poor' pensioners & bus-drivers. Lets remember some of the facts.

- All Eircom shareholders had the opportunity to sell out early and make a killing, nearly doubling their money. Those who opted to stick with Eircom lost 30% of their original investment. They came out better than many other investors in many other technology & communications companies.
- Capital losses can be carried forward indefinitely - so if those who lost money on Eircom EVER in their lifetime make a capital gain on any shares, property, art, land whatever, they can write-off their loss against this gain.
- Normal takeover laws applied to the takeover of Eircom by Valentia - There was a bidding war between Valentia & Denis O'Brien which brought up the price paid significantly. No-one else was interested in bidding. They got acceptances for 90% of the shares - as per normal takeover law, once acceptances for more than 80% of the shares are recieved, the takeover can proceed. This is just sensible company law - so talk of those 'forced to sell at the bottom of the market' is really spinning.

And what has availabilty of stockbrokers and accountants got to do with it. If you think stockbrokers know anything about share prices, just look at the leading aviation business analyst who rated Ryanair as a 'buy' last week on the day before the dropped 30%. Woody Allen said a stockbroker was someone who looked after your money until it was all gone. If you need to know how to calculate your Eircom losses, just go to Askaboutmoney.com for free independent advice - who needs an accountant anyway.

Ripwave

Originally posted by RainyDay
Oh my heart is now bleeding for all those 'poor' pensioners & bus-drivers. Lets remember some of the facts.

- All Eircom shareholders had the opportunity to sell out early and make a killing, nearly doubling their money. Those who opted to stick with Eircom lost 30% of their original investment. They came out better than many other investors in many other technology & communications companies.

The "facts" are that many of the people who bought eircom shares bought them as an "investment", not for speculative purposes. Do you know what percentage of the "small shareholders" simply sold off their shares for a quick profit?

- Capital losses can be carried forward indefinitely - so if those who lost money on Eircom EVER in their lifetime make a capital gain on any shares, property, art, land whatever, they can write-off their loss against this gain.

Big if. Why not just let them right it off against their income tax if that's the case?

- Normal takeover laws applied to the takeover of Eircom by Valentia - There was a bidding war between Valentia & Denis O'Brien which brought up the price paid significantly. No-one else was interested in bidding. They got acceptances for 90% of the shares - as per normal takeover law, once acceptances for more than 80% of the shares are recieved, the takeover can proceed. This is just sensible company law - so talk of those 'forced to sell at the bottom of the market' is really spinning.

There's no "spin". I know exactly how they were legally enabled to take the shares from people who had no interest in selling. The key point is that those laws were enacted to protect minority shareholders, so that they wouldn't be left holding "stranded" shares in a company that had been taken private. In this case the law was used to rob the small sharholders of the value of the company. The board should never have recommended acceptance of the offer in the first place.

(As for the phoney "bidding war"? Valentias initial offer was €1.22 a share. It's final offer was €1.365 a share. So someone who had spent €3,900 on shares got an extra €145 - €1365 instead of €1220. Valentia started out with the 15% ESOT holding in the bag, and KPN were practically begging anyone to take their 35%, so Valentia started out with between 50% and 60% of the shares more or less sorted. KPN didn't actually lose any money on the deal, as far as I recall, and the ESOT knew that they'd be getting far more than the €1.37 offered to other shareholders. Less than half the "small shareholders" had accepted Valentias bid when they made the offer compulsory).

And what has availabilty of stockbrokers and accountants got to do with it.

People who can afford to pay someone else to handle their money for them don't need to be "protected" from the likes of Valentia.

RainyDay

The core of this issue is that anyone who chooses to invest in any share of any company has to be prepared to lose their money. By taking equity in the company, you are taking on the risks of the company - you win some, and you lose some. If you don't like the way takeover rules work, then don't invest. If you don't like the way the Board operate, then don't invest - or sell out early. If you think you need to be 'protected' (above and beyond current legislation) from evil, nasty ould Valentia, then don't invest.

But if you do invest & you lose, stop moaning - take it on the chin and move on.

There is no good reason to offer a special tax break to those who lost money on Eircom.

dahamsta

Originally posted by Ripwave
Do you know what percentage of the "small shareholders" simply sold off their shares for a quick profit?

I don't know the percentage meself, but my answer would be: "Everyone I know"; or rather more offensively: "Anyone with half a brain".

The fact that Gov.ie played Eircom up to the detriment of shareholders is undeniable, but the decision still remained with people to buy those shares. If they had even the most basic understanding of the comms industry, they would have known that the trick with Eircom was to get in and out as quickly as possible, or failing that to avoid it like the plague. If they didn't have that basic understanding, they should have asked someone that did.

Gov.ie's handling of the Eircom selloff was utterly deplorable, but these people are adults responsible for their own welfare. At it's most basic level, the people that lost their savings in Eircom can be compared to an adult sticking their hand on a hotplate and complaining that they got burned. They deserve the same amount of sympathy a doctor would give in those circumstances.

adam

Ripwave

Originally posted by RainyDay
The core of this issue is that anyone who chooses to invest in any share of any company has to be prepared to lose their money. By taking equity in the company, you are taking on the risks of the company - you win some, and you lose some. If you don't like the way takeover rules work, then don't invest. If you don't like the way the Board operate, then don't invest - or sell out early. If you think you need to be 'protected' (above and beyond current legislation) from evil, nasty ould Valentia, then don't invest.

At the time that eircom was privatised, the Government was seriously considering privatising Aer Lingus and the ESB and various other State assets. A key aspect of getting public acceptance for this would be that they would be "sold to the people", not some faceless corporation. That particular approach was destroyed utterly by the way the eircom privatisation was handled.

But if you do invest & you lose, stop moaning - take it on the chin and move on.

If eircom had actually been over valued when people bought it, and was little more than an empty crock of a company when Valentia bought it, I doubt there's be much of an issue about it any more. But it wasn't. Every single one of the 450,000 small shareholders knew that they'd be paying the company an average of €50 a month for the forseeable future, along with another million of their family, neighbours and friends. To add insult to injury, they saw some shareholders getting special treatment (the ESOT was offered a 2-for-1 deal for it's support), and understood that Valentia was basically going to asset strip the company, and use their money (as customers of eircom) to pay for valentias debt.

The small share holders were robbed. They were given a choice of getting their cheque before christmas, or waiting until the following April. And still 200,000 declined to accept the Valentia offer.

There is no good reason to offer a special tax break to those who lost money on Eircom.

The only people getting "special tax breaks" are the small number of people who buy and sell shares on a regular basis. The eircom shareholders are entitled to tax fairness so that they can offset their loss agasint they tax that they actually paid.

(Does Tony O'Reilly pay any tax in Ireland, does anyone know?)

Ripwave

Originally posted by dahamsta
The fact that Gov.ie played Eircom up to the detriment of shareholders is undeniable, but the decision still remained with people to buy those shares. If they had even the most basic understanding of the comms industry, they would have known that the trick with Eircom was to get in and out as quickly as possible, or failing that to avoid it like the plague. If they didn't have that basic understanding, they should have asked someone that did.

Eircom wasn't grossly overvalued when it was floated, Adam. Obviously there was an amount of hype, and it was floated at the high end of it's target window, but remember that half of the available stock went to large institutional buyers. It simpley wasn't as susceptible to the sort of froth that characterised the NASDAQ or NYSE at the time, where huge numbers of individual buyers were running around like headless chickens driving prices up and down like the proverbials. Obviously, it followed the general sentiment of the market, but eircom did far, far better than the comms market as a whole, which crashed to as low as 10% of it's peaks. And eircom at the bottom of it's market was sitting on a monopoly with a huge, practically gauranteed cash flow, unlikely other companies that weren't in the "retail" side of the market.

There are two entirely seperate issues being confused here. Speculative gains and losses are all very well, and fair dues to those who sold eircom at the top of the market. But it's one thing to say "I bought Cisco at €80 and now the stock is only worth $20". It's quite another to say "Yesterday, I had shares that will probably be worth €5k in 3 years time, but today, someone cancelled those shares without my consent and gave me a cheque for €1300". (Even if we had a decent regulator in this country, and healthy competition in the comms market, eircom today would fetch a higher price than it did when it was taken off the market). Forget the money that those people lost - it's gone, and, despite the spin being put on it by some people, nobody asked for, or expected a handout on their behalf. Asking for all eircom shareholders to be allowed to offset their loss against their taxes, rather than just the speculators among them, is not looking for a handout, it's basic tax fairness.

Gov.ie's handling of the Eircom selloff was utterly deplorable, but these people are adults responsible for their own welfare. At it's most basic level, the people that lost their savings in Eircom can be compared to an adult sticking their hand on a hotplate and complaining that they got burned. They deserve the same amount of sympathy a doctor would give in those circumstances.

But that's the whole point, Adam - they didn't stick their hand on the hotplate. They were dragged over to the hotplate and their hand was forced onto it. The Government could have prevented the compulsory element of the purchase, which would have entailed some risks, but aside from everything else, it would have made it politically feasible to privatise other State companies in the forseeable future, something that is a lot more problematic now than it was then.

(By the way, there weren't any eircom shares in my name, and I've lost far more on comms stocks generally than the €5k that I think was the standard allocation for eircom shares?)

Moriarty

Moved to politics.

wexfordman

The eircom shareholders are entitled to tax fairness so that they can offset their loss agasint they tax that they actually paid.

Hey, I'm all for it Ripwave, I agree with you for once. The only thing is of course, we should be consistent with it too. If people who gamble (and no matter what they say it was a gamble) by buying shares, want the taxpayer to compensate them when they lose, they should do so also when they win. And being consistent means that this does not just apply to ex eircom shareholders.


Therefore, I propose that all capital gains from selling of all and any shares, should be evenly distributed among every good taxpayer in the country. That way, we can all benefit while other people take the risk!!!!:D

Wexfordman

RainyDay

Ah come on, Ripwave - you are spinning so hard you must be getting dizzy.

"Yesterday, I had shares that will probably be worth €5k in 3 years time, but today, someone cancelled those shares without my consent and gave me a cheque for €1300"

Comparing the value recieved for the Eircom shares against a putative future value is meaningless. They could be worth €5k in 3 years time, or €500 or €50k - that's the way the market works. And Eircom was by no means unique. Once the investor got their €1300 back, they could quite easily invest in other telecoms companies, which are likely to perform broadly in line with Eircom. The takeover did not deprive anyone of potential future gains.

Asking for all eircom shareholders to be allowed to offset their loss against their taxes, rather than just the speculators among them, is not looking for a handout, it's basic tax fairness.

Giving a special tax break to investors in one particular company is basic tax unfairness, not fairness. Giving an income tax break is, by definition, unfair. It would benefit higher tax payers at 42%, lower tax payers at 20% and the unwaged (including many pensioners) would not benefit at all.

But that's the whole point, Adam - they didn't stick their hand on the hotplate. They were dragged over to the hotplate and their hand was forced onto it....The small share holders were robbed. They were given a choice of getting their cheque before christmas, or waiting until the following April.

No, no, no - no-one was dragged or forced. They choose to invest, then the owners of 90% of the shares chose to accept, and normal takeover rules applied to the remaining small percentage.

And still 200,000 declined to accept the Valentia offer.

Or to be more precise, shareholders holding 90% of the shares accepted the offer. This is not a one-man, one vote scenario. It is one-share, one-vote. That's they way the system works. If you don't like the system, don't invest in shares.

dahamsta

"the decision still remained with people to buy those shares. If they had even the most basic understanding of the comms industry, they would have known that the trick with Eircom was to get in and out as quickly as possible, or failing that to avoid it like the plague. If they didn't have that basic understanding, they should have asked someone that did."

Everything else is by the by, beside the point.

adam

RainyDay

Originally posted by Muck
I heard last night that the Dept of Finance is planning an Eircom windfall tax in the Finance Bill to be published shortly.

No mention of Eircom in the Finance Bill published today. Your source must have been smoking some really strong stuff...

spongebob

Originally posted by Muck
They have about 4 weeks to get the wording straight as it can be introduced at committee stage in March...but no later than that.

Its not March is it ? Go drop some more depressants RainyDay :ninja:

Then there is the next round of asset sales to be considered.

Aer Rianta and Aer Lingus are on the Finance radar.

M

RainyDay

Originally posted by Muck
Its not March is it ? Go drop some more depressants RainyDay :ninja:


M

Care to put some money on it? I'll wager a 50 euro donation to your favourite charity that there will be no change in tax law specifically aimed at Eircom shareholders. Will you cover the other side, i.e. a 50 euro donation to my favourite charity if there is no change?

bonkey

Originally posted by RainyDay
Care to put some money on it? I'll wager a 50 euro donation to your favourite charity that there will be no change in tax law specifically aimed at Eircom shareholders. Will you cover the other side, i.e. a 50 euro donation to my favourite charity if there is no change?

Err???

You're betting there will be no change, and asking someone to bet against you....whilst also betting that there will be no change.

So if there is no change, you both pay out, and if there is a change, neither of you do.

That doesn't appear to make sense.

Oh - as a moderator, I should also probably discourage betting on the forum.....

jc

RainyDay

Just to be clear, I'll pay out if there IS a change to the tax laws specifically in relation to Eircom shareholders if Muck will agree to pay out if there is NO such change.

spongebob

My current reading of the odds are that they are less than even RainyDay.

Care to restate them ?

M

RainyDay

Less than evens for which side? I'm propose a straight 50 euro bet for each person - You forfeit 50 euro if there is no change, I forfeit 50 euro if there is a change - Are you on?