Dáil Éireann Debate, Thursday - 27 September 2018
76. Deputy Eamon Ryan asked the Minister for Finance the likely revenue that would accrue to the State on the closure of existing tax breaks for real estate investment funds including section 110 special purpose vehicle exemptions related to foreign housing and rental investors, exemptions from capital gains tax, DIRT and corporation tax; and if he will make a statement on the matter. [39316/18]
View answerA number of legislative changes have been made in recent years to ensure that income and gains arising to real estate investment funds active in the Irish property market are subject to tax.
For example, Finance Act 2016 made certain changes to the taxation of companies set up under section 110 companies of the Taxes Consolidation Act 1997 (TCA), which is designed to create a tax neutral regime for bona-fide securitisation and structured finance purposes. Section 110 companies can only hold certain qualifying assets. Real property is not an asset that these companies can hold, however they can hold loans and other financial assets that derive their value therefrom. The Finance Act 2016 changes related to the taxation of profits which were derived from Irish land and buildings and provided a restriction on the amount of interest which is deductible against such profits, thereby excluding businesses with loans which are secured over, or derive their value from, an interest in Irish land from using the provisions of section 110 to avoid payment of Irish tax on profits made on Irish property transactions. Those changes took effect from 6 September 2016.
The Deputy will also be aware of the REIT regime introduced in Finance Act 2013 and the IREF regime introduced in Finance Act 2016. Both regimes, which apply to collective investment vehicles, in general terms provide that profits arising from Irish rental property are taxed at the investor level rather than at the investment vehicle level. That is, the vehicle is not subject to corporation tax or capital gains tax because the income and/or gains are taxed at the level of the investor when they receive a payment from that vehicle. Under both regimes a 20% withholding tax applies on dividends paid out of Irish property profits or gains to non-resident investors.
There are a number of exceptions from the operation of the IREF and REIT withholding tax such as for pension schemes and charities as they are more generally exempt from tax.
DIRT does not apply to deposits held by companies who have supplied their tax reference number to a deposit taker. I would note however while DIRT is not collected at source, such companies are subject to tax on the interest income. There is no specific exemption from DIRT for section 110s, REITs or IREFs. The nature of investment vehicles is such that they are unlikely to hold significant deposits for any period of time.
I am advised by Revenue that it is not possible to calculate the amount of tax that would be paid if:
- a company had not submitted a notification to Revenue that it is a qualifying company for the purposes of section 110 TCA 1997,
- the REIT regime was not in existence, or
- the IREF regime was not in existence.
Any such calculation would require a wide range of assumptions as to what activity would have taken place in the absence of these regimes.
