Dáil Éireann Debate, Monday - 11 September 2017
154. Deputy Michael McGrath asked the Minister for Finance further to the changes to the section 110 tax structure introduced in the Finance Act 2016, if property funds that purchase residential and commercial loans from NAMA and banks operating here will no longer be able to avail of this structure in respect of the profits earned on the holding of such loans; and if he will make a statement on the matter. [37955/17]
View answerSection 22 of the Finance Act 2016 made an amendment to section 110 of the Taxes Consolidation Act 1997 to address the concern that some section 110 companies were being used to minimise the Irish tax exposure on Irish property transactions. The core effect of the amendment is to remove the possibility for section 110 companies to use what are known as 'profit participating notes' to sweep Irish property or distressed debt profits out of the company in a way that ensures little or no Irish tax liability arises.
This is to be achieved by, for the purposes of section 110, treating the holding of Irish mortgages as a separate business which will not be entitled to a tax deduction for the coupon on the profit participating note. Therefore, while section 110 companies may still purchase loans, the profits made by the section 110 company on their Irish mortgages will be taxable.
By treating the holding of the Irish mortgages as a separate business, this will ensure the protection of the Irish tax base regarding Irish property transactions, while simultaneously maintaining the section 110 regime, and all the benefits associated with it, for the wider use in de-leveraging by financial institutions.
The amendment does not permit the companies to ‘mark to market’ and applies to profits arising on or after 6 September 2016. Ireland, in both its domestic legislation and its double tax treaties, maintains the right to tax land in the State. Loans which derive their value from land in the State are an interest in land, and so we also maintain the right to tax profits associated with those loans.
