Dáil Éireann Debate, Tuesday - 19 July 2016
167. Deputy Ruth Coppinger asked the Minister for Finance if any analysis was carried out by his Department of the tax treatment of vulture funds prior to or after the sale of NAMA and State-owned bank assets to such funds. [22052/16]
View answerSection 110 of the Taxes Consolidation Act 1997 sets out a regime for the taxation of special purpose companies set up to securitise assets. The tax provisions are intended to ring-fence the use of section 110 companies for bona-fide securitisation purposes.
The features of the regime are that:
- The company must be tax resident in Ireland and carry on the business of holding or managing "qualifying assets". "Qualifying assets" for Section 110 purposes includes a broad range of financial and other assets including shares, bonds, derivatives, loans, deposits, commodities, plant and machinery and invoices and other types of receivable.
- The value of "qualifying assets" must be at least €10Million at the time they are acquired by the Section 110 company.
- Apart from the holding or managing of the "qualifying assets" the company cannot carry on any other activities.
The profits or gains of such companies are subject to corporation tax at a rate of 25%. This is the rate of tax for passive income but the taxable profit is calculated using the normal rules that apply to trading activities. Such companies are allowed a full deduction for interest paid recognising their role in raising funding for the originator of the securitisation.
A company must notify the Office of the Revenue Commissioners in advance of its intention to fall within the scope of section 110 TCA 1997. The companies are required to pay their taxes and file their tax returns in the same way as all other companies and are subject to the same monitoring by the Revenue Commissioners.
I understand that officials from the Department of Finance and the Revenue Commissioners are currently examining recent media coverage concerning the use of certain vehicles for property investments. Should these investigations uncover tax avoidance schemes or abuse, which erodes the tax base and causes reputational issues for the State, then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for my consideration.
On so-called "vulture funds" more generally, the Consumer Protection (Regulation of Credit Servicing Firms) Act, 2015 was enacted on 8 July 2015. It was introduced to fill the consumer protection gap where loans were sold by the original lender to an unregulated firm. The 2015 Act introduced a regulatory regime for a new type of entity called a 'credit servicing firm'. Credit Servicing Firms are now subject to the provisions of Irish financial services law that apply to 'regulated financial service providers'. This ensures that relevant borrowers, whose loans are sold to third parties, maintain the same regulatory protections they had prior to the sale, including under the various statutory codes (such as the Consumer Protection Code, Code of Conduct on Mortgage Arrears, Code of Conduct for Business Lending to Small and Medium Enterprises and the Minimum Competency Code) issued by the Central Bank of Ireland and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 which comes into operation on 1 July 2016.
