Wednesday, 8 May 2019

Questions (145, 148, 151, 152, 153)

Pearse Doherty

Question:

145. Deputy Pearse Doherty asked the Minister for Finance the value of property held by IREFs in each of the years 2016 to 2018 and to date in 2019. [19315/19]

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Pearse Doherty

Question:

148. Deputy Pearse Doherty asked the Minister for Finance the effective corporate tax and capital gains tax rates for IREFs in each of the years 2016 to 2018. [19321/19]

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Pearse Doherty

Question:

151. Deputy Pearse Doherty asked the Minister for Finance if the removal of the IREF five year holding capital gains tax exemption applies to all IREFs and is retrospective to assets acquired before 1 January 2019. [19324/19]

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Pearse Doherty

Question:

152. Deputy Pearse Doherty asked the Minister for Finance the rate capital gains tax is chargeable regarding IREFs which are subject to the tax; and if this can be reduced through double tax treaties or by the fact that the IREF is owned by institutional investors such as pension funds. [19325/19]

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Pearse Doherty

Question:

153. Deputy Pearse Doherty asked the Minister for Finance the reason he chose to allow IREF shareholders an exemption from capital gains tax on disposal of IREF shares even in cases in which the shares are not quoted on the stock exchange as was originally anticipated when this legislation was introduced. [19327/19]

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Written answers (Question to Finance)

I propose to take Questions Nos. 145, 148, and 151 to 153, inclusive, together.

The Irish Real Estate Fund (IREF) regime was introduced by Finance Act 2016 and is effective for accounting periods starting on or after 1 January 2017. Under the regime, a fund is classified as an IREF if it derives 25% or more of its value from Irish land and buildings. The section was introduced to address the use of certain fund vehicles to invest in Irish property by non-resident investors, thereby avoiding a charge to tax on profits arising from Irish real estate.

I am informed by Revenue that information in relation to the value of property held by IREFs for the years 2016 to 2018 is currently incomplete. Partial information is available in relation to IREFs from the tax returns they have made to Revenue for the years 2017 and 2018. This is due to the fact that only IREFs that have a taxable event in a year are required to make a tax return to Revenue and not all IREFs have made returns for the requested years. Revenue are currently working on the tax returns that have been made to them for the years 2017 and 2018. Financial statements were filed on 30 January 2019 with Revenue for all IREF’s for all accounting periods which ended during 2017 and accounting periods which ended or on or before 30 June 2018. This accounting data is being analysed by Revenue at present. When this work is complete Revenue will be in a position to provide the information that the Deputy has requested.

In terms of effective rates, as IREFs are fund vehicles which are taxed under the gross roll-up exit tax regime they are not subject to corporation tax or capital gains tax. Accordingly, there are no effective corporation tax rates or capital gains tax (CGT) rates for IREFs for the years 2016, 2017 and 2018.

With regard to the exemption from IREF withholding tax on the distribution of capital gains on assets which had been held for more than 5 years, this exclusion was removed as part of Finance Act 2017.  The removal applies to any assets disposed of on or after 1 January 2019, regardless of the date on which the asset was acquired.

In relation to the taxation of institutional investors, IREF withholding tax at 20% applies to profits paid out of an IREF, this withholding tax does not apply to certain categories of investor. Irish pension funds, for example, are exempt from Irish tax with tax being levied when the pensioner draws down the pension.  As such, Irish pension funds are also exempt from IREF withholding tax. European pension funds which are equivalent to Irish pension funds are likewise exempt from the IREF withholding tax.  There are however anti-avoidance rules, known as the Personal Portfolio IREF rules, which prevent closely held exempt vehicles being used to avoid a charge to IREF withholding tax.

Where an investor holds less than 10% of the units in an IREF, they may be able to claim a refund of any IREF withholding tax suffered under the dividend article of a double tax agreement.  Investors who hold more than 10% of the units cannot avail of a refund under a double tax agreement.

With regard to the applicability of CGT on the disposal of shares, an amendment was made in Finance Act 2017 to clarify the tax position in respect of an indirect disposal of IREF units – e.g. a disposal of a share that derives its value from IREF units. The amendment clarified that an indirect disposal of the units would not trigger CGT, as the profits to which the IREF charge applies remain within the IREF and within the scope of IREF withholding tax. This change was made to ensure consistency in the application of the IREF legislation. By contrast, a direct disposal of an IREF unit (e.g. the sale of a unit) is not subject to CGT as any gains within the IREF, which are reflected in the value of the unit, are subject to tax under the IREF tax regime.  It was considered inconsistent to have a situation whereby the direct disposal of a unit was not subject to CGT due to being already subject to an exit tax, whereas the indirect disposal of a unit was subject both to CGT and the IREF withholding tax.