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WITH THE IRISH government’s decision to appeal a ruling by the European Commission that Apple owes this country €13 billion in unpaid taxes, the idea of Ireland as a tax haven is very much to the forefront of the public consciousness at present.
Yesterday, Michael Noonan attended a summit of European finance ministers in Bratislava, Slovakia, and to the surprise of no-one taxation was heavily on the agenda.
It would be understandable if the durable minister had felt a little uncomfortable – if we’re a little unsure of the Apple appeal here in Ireland, in appealing it the might of the European Commission is being directly contradicted.
Last week, the government moved to close a ‘loophole’ within Irish tax law, known as the Section 110 ruling, which allowed vulture funds to buy up mortgages here but pay no tax having registered as a company with charitable status.
The existence of such funds had been raised on numerous occasions in Dáil Éireann by TDs such as (now) independent Stephen Donnelly and Sinn Féin’s Pearse Doherty.
But now it seems that those ‘loopholes’ may be just the tip of the iceberg.
A number of investment vehicles are available to foreign property investors here which allows them to pay no tax on profits.
The instruments in question, Qualifying Investor Alternative Investment Funds (QIAIFs) and Irish Collective Asset Management Vehicles (ICAVs) are official regulated fund structures.
The value of property held here by such funds is in the region of a staggering €300 billion.
And make no mistake, the Dublin office property market in particular is big business. 27% of Dublin’s office space has changed hands in the last 40 months according to property advisers Savills.
That equates to total spending of €5.3 billion. Over 25% of Dublin’s office stock has changed hands since 2013.
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And in the first quarter of 2016 fully 67.8% of the money spent on Dublin office property came from abroad.
So just how much tax is being avoided using these structures? That’s a very difficult question to answer, but you’re probably talking in the hundreds of millions. And it’s all legal.
How these funds work
To take one example, Kennedy Wilson Europe Real Estate (KWER), a global player in property management with interests in Britain, Italy, Spain, and Ireland, manages its Irish property portfolio via two separate QIAIFs.
Davy Stockbrokers describe QIAIFs as “an Irish regulated fund structure and the vehicle of choice for private and institutional investors who are undertaking large scale investment in real estate “.
In Kennedy Wilson’s case, the company owns a property portfolio here worth roughly €1 billion.
Rent from those properties was in the region of €26 million for the first six months of 2016 (two properties owned by KWER here are the Stillorgan Leisureplex in south Co Dublin, and Portmarnock Golf Club). And no tax was paid on that rent.
“Investments in Ireland are held through two Irish qualifying investor alternative investment funds, which are exempt from any Irish taxation on income and gains,” the company says in its half-year results for the first six months of this year.
In the same section KWER states that it is subject to 25% corporate tax on profits within its Spanish subsidiaries, and 20% on rental income from its UK investment properties. From that point of view Ireland is naturally an attractive prospect.
The Group is subject to corporate income tax at 25% on taxable profits generated within its Spanish subsidiaries. Income tax is payable at 20% on rental income deriving from UK investment properties.
Registered QIAIFs and ICAVs in Ireland are listed by the Central Bank once a month on its website. Other examples of QIAIFs operating in Ireland include:
Why do these funds exist?
This isn’t an easy question to answer. QIAIFs were initially set up in the 2000s as a means of attracting foreign investors to Ireland.
ICAVs were established by the last government in 2015.
“Why are they there? Well a huge selling point is the number of people employed in funds-management in Ireland,” a senior financial source told TheJournal.ie.
That figure is roughly 38,000 people by the way, according to the Department of Finance, a huge figure by any estimation.
“From a point of view of simplicity, Ireland’s regime is as simple as they come, and non-resident investors enjoy tax-free status on any income gains here,” the source said.
Half the world’s hedge funds are either managed from here or domiciled here. We’ve a very attractive tax regime here with a huge services industry built around it.
The regime is very straightforward and investors are very comfortable with that.
Sinn Féin finance spokesman Doherty meanwhile says the regime was set up “as a way of triggering investment”.
“My own view is that successive governments put up a “For Sale” sign on Ireland to push up property prices and get the market moving,” he told TheJournal.ie.
I also believe it exists to help NAMA get a better return on sales, and to help put a better view on banks’ balance sheets.
“These are sophisticated funds for sophisticated investors who know what they are doing,” Doherty adds.
We’re talking about companies that have tens of millions of rental income every year and they aren’t paying any tax on it – that is not acceptable.
Trouble brewing
Pearse Doherty objects to the word “loophole” as in the context of the Section 110 companies.
“That wasn’t a loophole, that was deliberate legislation, and it took the ramping up of political pressure to have it closed,” he says. “This is a similar situation.”
There was very little more that could have been done with Section 110 anyway as most of them have been sold off.
A freedom of information request submitted by Doherty to the Department of Finance (DOF) earlier this year suggests that Revenue officials are also beginning to worry about the tax situations of foreign investment vehicles here.
One email from Principal Officer with Revenue Áine Hollingsworth to the Department of Finance in April of this year cites a need to “come up with realistic and implementable anti-avoidance abuse rules for property funds if that is desirable”.
This concern seems to have been triggered by a report in the Sunday Times concerning the legal avoidance of Capital Gains Tax by billionaire Denis O’Brien on the sale of a property in Dublin earlier this year. That was achieved through the use of an ICAV, the Real Estate Development and Investment Fund.
Another email from Hollingsworth to the DOF from end-April suggests that the Revenue officer is “anxious to start on this ASAP”.
Also during April, Doherty submitted formal questions to Michael Noonan in the Dáil concerning the operation of property asset funds here, specifically QIAIFs and ICAVs.
Noonan responded:
ICAVs were introduced in 2015 as a measure to develop and enhance Irish competitiveness in the funds industry in Ireland and to promote employment in the State.
Qualifying investor funds, once authorised by the Central Bank, fall under the definition of an ‘investment undertaking’… the legislation provides a tax exemption to the undertaking itself and to certain investors, for example investors not resident in the State.
“I am… advised by the Revenue Commissioners that they are currently examining recent media coverage concerning the use of investment funds for property investments. Should these investigations uncover tax avoidance schemes or abuse then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for my consideration.”
What should be done? What can be done?
As already mentioned, these kinds of investment funds are now well-established in the country, as is the supporting industry surrounding them.
Dismantling that industry is not really an option. But changing the tax laws might be.
“The solution is a simple one,” says Doherty. “Charge the same withholding tax seen elsewhere in Europe where non-resident investors are accumulating profits outside their own jurisdiction.”
That tax ranges in level from 20% in Britain to 25% in Spain to 30% in France.
“We need to ensure that those who are getting generous returns on property investment here are liable here for economic activity that has taken place here,” says Doherty.
At present people renting properties here are paying into these funds and not a penny is going to the state. That has to change.
The financial solution may be a simple one, but the political solution is likely to be anything but.
It took extreme political pressure to action the closing of the Section 110 loophole. It is likely to take the same again and more to change the tax laws surrounding these funds.
Most badly managed lottery – not won since June 6th, rollover capped so low, when it’s won jackpot starts at €2 million…it’s finished
@Jack Russell: How is it badly managed? Its a game of chance. Numbers haven’t clicked, simple as. In spite of the lack of jackpot winner there has been increased lower prizes. That in my mind ensures more people get more money.
@Ger Murphy: increased lower prizes ?? Have a day off, the increase is pathetic in comparison to the what the jackpot is supposed to be increased by every draw if it’s not won. This is plucking criminal, where is this money going ??
@Malachi Shanks: check your facts before you spout. Then we can have a rational discussion.
Jackpot not won. Plus 1 not won. Plus 2 not won. 5+ bonus ball not won in all three draws. There must be a lot of Canadian teachers due to retire shortly.
ODDS are stacked High against YOU winning the Jackpot Folks ,Time to try 2/3 numbers in bookies 60/1 + 100/1.
@Larry Rawson: your odds are completely wrong 40/1 and 330/1
@cillian: You’re both wrong. 60/1 for 2 numbers and 700/1 for 3. 45/1 and 400/1 if you include the bonus.
The highest prize won out of all the draws was €29,000 hah
@Gary: yeh and that’s hard to get, odds are still low.
50 no wins is very very unlikely, given the odds. I’m sure there’s nothing untoward though
@Gary: that was just the highest prize won in the last draw. There’s been winners between 500k t 850k regularly enough the last two months. Lotto still making a mint though
@slfc21: There is meant to be €2 million rollover ever week. It’s capped at €19 million. They said if the jackpot wasn’t won they would give higher winnings to the next top winner. They didn’t! The only one getting rich is the Canadian investment group.
@john smith iv: There were some interesting figures out during the week that said the odds of the Irish lotto rolling over 50 times are about 1,500:1. It’s unusual but by no means extraordinary.
Chances of an individual draw rolling over are about 85%.
Meanwhile the odds of a single line matching all 6 numbers are 10.7million to one. Statistically speaking, playing the lotto is an absurd thing to do. Don’t waste your money to begin with – if you’re not in, you can’t lose…
@Gary: my comment was just replying to your comment where you said that 29k was the most won out of all the draws. It wasn’t . You didn’t say any of that the first time.
@Kevin Collins: 2 euro at 10.7 million to one doesn’t seem terrible to try to win 19m when you factor in there are also smaller prizes
@Mickety Dee: 4 euro minimum
@Eoin Sweeney: Still, that’s for two lines.
Boycott
Boycott it.
FG Td crying over spilt milk when his party sold it in the first place!
@Niall Power: Was howler-labour who actually was behind it but of course cheered on by FG
We’re funding the Canadian teachers pension fund. Oh and good causes
Shambles, the ad constantly saying it’s a jackpot but never mention nobodies won it in ages. Needs investigating.
Why has it been capped?? Is there a reason why, legally??,are they allowed to cap it??..Anyone got an answer..Would like to know.
@Cian Omahony Snr: Yes, because if it goes above 19m in theory someone or some group could buy all the combinations for less than the jackpot amount and make a profit.
Withdraw their licence.
Is anyone playing it even
Why bother capping it at 19, Euro millions is capped at 180 so an Irish person could win that
@Peter Tutty: The Euromillions is currently capped at 230m and when the cap is reached and in turn won, the cap increases 10m each time that arises, Unlike the lotto
51st rollover so a TD asks for for TWO numbers to be withdrawn.That should fix the issue. The majority doing the Lotto since day on have most likely stuck to birthdays so adding on over the years has only helped the Lotto!
The Lotto concept encourages the idea that winning big money grants a status higher that of his or her fellow humans, a flasher faster car, a bigger house, more exotic holidays etc. it promotes the idea that wealth equates with happiness.
On the hundredth anniversary of our independence, we can do better as a people than fumble with bad taste scratch cards and coloured balls to get our kicks. The concept the Lotto espouses is damaging to our dignity as individuals and the self-respect of our society. The pandemic has demonstrated what is important in a society and what is not, it is time to end the Lotto.
@Fergus Quinlan: I’d love to win tho lotto jackpot or more so, the euromillions. I would be extremely happy. I’d even stretch to buying you a pint to cheer your miserable self up!
It’s a tax on the mathematically challenged.
Should avoid buying tickets, until the odds of winning are fairer
Just spend your money doing the lottery with your local club.
Greater chance of a bird slipping on a banana skin, breaking its leg and getting covid
I have been playing the lottery since i was 13 years and now i am 32 meaning i have been playing the lottery for 7 years. The biggest amount I have ever won in my life was 1500 bucks. But one day my story turns to history after I find this man’s name on the Internet that he is the best when it comes to winning the lottery. This man is a very strong voodoo Dr John who gives out the lottery winning numbers that can never fail. After all my years of laboring and struggling to win the lottery i finally won ($12,000,000) Dr John, is the name, EMAIL him now: Whatsapp Him : +1 (803) 820 2671
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