Dublin: Recent developments in Ireland have raised questions about the incorporation of Sharia laws in the country’s financial system. A special circular issued by the Revenue on Islamic financing has sparked discussions and controversies in various circles, given Ireland’s traditionally Catholic identity.
The circular, titled “Islamic Financing,” defines Islamic financing as financial arrangements that adhere to the principles of Sharia law. It emphasises the prohibition of paying and receiving interest, a core tenet of Sharia. The circular outlines procedures to promote the benefits of such financial practices.
According to the Revenue, Islamic finance arrangements aim to achieve the same objectives as conventional financial transactions but through different structural means, serving as an alternative to credit. Depending on the circumstances, Sharia-compliant transactions can be treated as mainstream financial transactions or as specified financial transactions.
The circular specifies that Sharia-compliant financial transactions must be reported to the Revenue using the prescribed forms, SFT1 and SFT2. Section 267N of the Tax Consolidation Act, 1997, mandates the use of the SFT1 form for financial transactions and the SFT2 form for companies. For further details, the Revenue directs readers to the Tax and Duty Manual on the tax treatment of Islamic financial transactions.
Broader Implications
The issuance of this circular has led to the revelation of several Islamic finance groups already operating in Ireland. Despite Muslims constituting less than two percent of the population, their significant investment in the capital market has gained attention. These activities, guided by precise regulations, reportedly enjoy the support of all major political parties in Ireland.
There are allegations that hundreds of political activists, legal experts, and government officials are endorsing and facilitating laws favourable to Islamic finance. The guidelines also suggest plans to introduce “Halal mortgages” as a solution to the longstanding housing crisis. Islamic finance groups are optimistic about implementing interest-free mortgages through existing banks.
The circular and its implications mark a significant shift in Ireland’s financial landscape, indicating a move towards accommodating diverse financial practices. Whether this represents a deviation from traditional norms or an inclusive approach to global financial practices remains a subject of debate.
For more information, refer to https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-08a/08a-01-01.pdf.
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