Tuesday, 26 March 2019

Questions (198, 199, 200, 201, 202, 203)

Pearse Doherty

Question:

198. Deputy Pearse Doherty asked the Minister for Finance the net tax take from IREF dividend withholding tax in 2017 and 2018. [13337/19]

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Pearse Doherty

Question:

199. Deputy Pearse Doherty asked the Minister for Finance the declared net profit on rental income from IREFs in 2017 and 2018. [13338/19]

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Pearse Doherty

Question:

200. Deputy Pearse Doherty asked the Minister for Finance the declared net profit on rental income from REITs in 2017 and 2018. [13339/19]

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Pearse Doherty

Question:

201. Deputy Pearse Doherty asked the Minister for Finance the declared capital gains from property held in IREFs in 2017 and 2018. [13340/19]

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Pearse Doherty

Question:

202. Deputy Pearse Doherty asked the Minister for Finance the declared capital gains from property held in REITs in 2017 and 2018. [13341/19]

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Pearse Doherty

Question:

203. Deputy Pearse Doherty asked the Minister for Finance the net tax take from REIT dividend withholding tax in 2017 and 2018. [13342/19]

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Written answers (Question to Finance)

I propose to take Questions Nos. 198 to 203, inclusive, together.

The rules relating to Irish Real Estate Funds (IREF) are set out in Chapter 1B of Part 27, Taxes Consolidation Act 1997, and were introduced by Finance Act 2016. An IREF is an investment fund that derives 25% or more of its value from Irish real estate. As an investment undertaking, the profits or gains of the IREF are not taxed within the fund, but instead are subject to tax in the hands of the investors. As a result information on net rental profits or capital gains from property within IREFs is not available as distributions of value (generally comprised of accrued income and/or gains) are the reference point for taxation.

Where an investor receives value from the IREF, an IREF withholding tax of 20% will generally apply. There are a number of classes of investor that are exempt from the operation of this withholding tax, such as pension schemes and charities as they are more generally exempt from tax. Investors who own less than 10% of the IREF can make a claim for a repayment of dividend withholding tax if they are entitled to a lower rate of withholding tax under a double tax agreement.

IREFs are required to declare and pay this withholding tax on an annual basis and I am advised by Revenue that the first return and payment of IREF withholding tax was due 30 July 2018 where a fund had an accounting period that ended in the second half of 2017. The amount of IREF withholding tax collected on the distribution of profits by relevant IREFs was in the region of €9m for this period. The data collected by Revenue relates to the distributions paid out of the funds. It is important to note that any profits which remain within the fund will be subject to tax when they are eventually distributed to investors. Returns were due to Revenue in January in respect of funds with accounting periods ending in the six months to July of 2018, these returns are currently being processed and information will be available in due course.

The rules relating to Real Estate Investment Trusts (REITs) in Ireland are found in Part 25A of the Taxes Consolidation Act 1997, and were introduced by Finance Act 2013. In order to be a REIT, a company must be listed on the main market of an EU stock exchange within three years of forming, and it must be widely held. Irish REITs are collective investment vehicles which invest in Irish property. As such, their income and gains from Irish property are not taxed within the REIT but are instead taxed in the hands of the investor when distributed. REITs must distribute at least 85% of their property profits and gains to their shareholders each year. A REIT is subject to corporation tax on any income or gains arising from any other business (i.e. non-property business) that it carries on.

Dividend withholding tax at 20% must be applied to all distributions from REITs, other than distributions to certain limited classes of investors such as pension funds and charities as they are more generally exempt from tax. Investors can make a claim for a repayment of dividend withholding tax if they are entitled to a lower rate of withholding tax under a double tax agreement. I am advised by Revenue that net dividend withholding tax amounting to €11.8 million in 2017 and €12.4 million in 2018 was collected in respect of dividends paid by REITs.

As REITs are not subject to Corporation Tax on their Irish property profits or gains, there is no obligation to report these amounts to Revenue. Revenue has also confirmed that, due to the small number of REITs involved and its obligation to maintain the confidentiality of taxpayer information, it cannot provide specific information in relation to the income or capital gains associated with these entities.