185. Deputy Pearse Doherty asked the Minister for Finance the expected revenue from ending the capital gains tax exemption from the sale of property held within REITs. [21939/19]View answer
Written Answers Nos. 185-200
185. Deputy Pearse Doherty asked the Minister for Finance the expected revenue from ending the capital gains tax exemption from the sale of property held within REITs. [21939/19]View answer
187. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue from introducing a minimum dividend withholding tax rate of 25% and of 30% on all dividends paid by REITs. [21941/19]View answer
I propose to take Questions Nos. 185 and 187 together.
The regime for the operation of Real Estate Investment Trusts (REITs) in Ireland was introduced in Finance Act 2013. The framework for REITs is designed to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment through a corporate vehicle. The property rental income and gains are exempt from tax within the REIT, they are taxed instead at the investor level when distributed. Part 25A of the Taxes Consolidation Act 1997 (“TCA 1997”) requires that 85% of all property income profits are distributed annually to investors. Any income or gains arising to the REIT which is not in respect of the REITs property rental business is subject to corporation tax.
I am advised by Revenue that information in respect of potential future capital gains from the sale of property held by REITs is unavailable. I am therefore unable to provide an accurate estimate of the potential revenue which would be raised from the removal of the exemption.
In relation to dividend withholding tax, in order to ensure tax was retained from non-resident investors a dividend withholding tax at the standard rate of tax (20%) was legislated for to apply to REIT dividends. Non-resident REIT shareholders resident in treaty countries may be able to reclaim part of this dividend withholding tax if the relevant treaty allows. Given this interaction with tax treaties and that information is not available in relation to potential future REIT dividends to investors an accurate estimate of any potential revenue from an increase in the withholding tax rate cannot be made.
Question No. 187 answered with Question No. 185.
Question No. 188 answered with Question No. 186.
186. Deputy Pearse Doherty asked the Minister for Finance the expected revenue from ending the dividend withholding tax exemption for non-resident IREF shareholders from dividends related to the sale of property held within a IREF for five years. [21940/19]View answer
188. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue from introducing a minimum dividend withholding tax rate of 25% and 30%, respectively on all dividends paid by IREFs. [21942/19]View answer
I propose to take Questions Nos. 186 and 188 together.
Finance Act 2016 introduced the Irish Real Estate Funds (IREFs) regime. The regime provides that the profits arising to an Irish fund from Irish property remain within the charge to Irish tax. An IREF is an investment undertaking where 25% or more of the value of the assets is derived from real estate assets in the State. Generally, where a unit holder receives value from the IREF an IREF withholding tax of 20% will apply.
On introduction in Finance Act 2016 the IREF regime provided for an exemption from IREF withholding tax on the distribution of profits that arose from holding Irish land or buildings for more than 5 years. Finance Act 2017 amended the legislation to remove this CGT exemption from 1 January 2019. An accurate estimate of expected revenue cannot be made as it would be dependent on the value of gains realised by IREFs as a result of transactions in Irish real estate assets.
Furthermore, non-resident IREF shareholders resident in treaty countries may be able to reclaim part of the IREF withholding tax if the relevant treaty allows. Given this interaction with tax treaties and that information is not available in relation to potential future IREF distributions to investors, an accurate estimate of any potential revenue from a change in the operation of withholding tax, including the removal of the CGT exemption or a potential increase in the rate, cannot be made.
189. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that could have been raised if intangible assets onshore between 2015 and 2018 were taxed at the current 80% cap; and if he will make a statement on the matter. [21943/19]View answer
I am advised by Revenue that tax returns do not record the onshoring of assets (or the year in which onshoring occurred). The available information is the amounts of capital allowances claimed in respect of intangible assets.
The 80% cap on capital allowances was re-introduced in Finance Bill 2017 and it applies to all intangible assets acquired from 11 October 2017. It is important to note that the imposition of a cap on capital allowances for intangible assets only affects the timing of relief in the form of capital allowances and related interest expenses for intangible assets but does not affect the overall quantum of relief. This is because any amounts restricted in one accounting period as a result of a cap are available for carry forward and utilisation in a subsequent accounting period, subject to the application of the cap in that period. Therefore no additional tax revenue would be raised in the long-term through the Deputy's proposal.
I am advised by Revenue that, based on levels of capital allowance claims in tax returns for recent years, it is tentatively estimated that there would be a cash flow benefit of approximately €750 million if intangible assets acquired between 2015 and 11 October 2017 were subject to the 80% cap. It is important to be clear that such a change would not lead to more tax overall and this simply a timing matter - to present this as additional tax for the exchequer would not be correct. I do not wish to repeat the mistakes of the past by increasing expenditure through unsustainable tax changes. I would also note that this estimate is on the basis of assuming no behavioural change on the part of the companies involved. Furthermore, as the Deputy will be aware, changes to tax law are generally made on a prospective basis such that they apply only from the date on which they have legal effect.
190. Deputy Pearse Doherty asked the Minister for Finance the additional corporation tax that could be expected if the bailed out banks had applied to them a 25% limit on losses that could be carried forward in any year and a five year absolute limit in which such losses could be used; and if he will make a statement on the matter. [21946/19]View answer
Corporation Tax Loss Relief is provided for by Section 396 of the Taxes Consolidation Act (TCA) 1997. It allows for losses incurred in the course of business to be accounted for when calculating tax liabilities. Loss relief for corporation tax is a long standing feature of the Irish Corporate Tax system and is a standard feature of Corporation Tax systems in all OECD countries.
Section 396C of the TCA 1997 previously restricted NAMA participating institutions to offset losses against a maximum of 50% of taxable profits in a given year. At the time of its introduction the Government had limited involvement in the banking system. However, by Finance Bill 2013, this measure was considered to have outlasted its initial purpose. Due to the substantial holdings that the State had, by that time, acquired in the banking sector (99.8% AIB and 15% of Bank of Ireland), the restriction was deemed to be acting against the State’s interests.
Section 396C was repealed to reduce the State’s role as a ‘backstop’ provider of capital and to protect the existing value of the State’s equity and debt investments. With the removal of Section 396C, AIB and BOI were restored to the same position as other Irish corporates, including other Irish banks.
It is not possible to quantify the estimated additional corporation tax revenue from the measures referred to by the Deputy, as this would depend on the future profitability of the banks. Nevertheless, as I have previously stated, I do not intend to change how losses are currently treated for Irish banks, including those that were bailed out by the State, as I believe there could be consequences that would make it difficult for me to fulfill other objectives in respect of the Irish banking system. Such a change could have knock on implications for the cost of lending and deposits for consumers and businesses in Ireland. There would also be a material negative impact on the valuation of the State's investments from any change in tax treatment of accumulated losses where the banks are concerned.
It is important to understand that the State is actually getting value today from these deferred tax assets through our share sales. The banks are also contributing to the Exchequer through the financial institutions levy, introduced in 2013, which generates an annual yield of approximately €150 million to the Exchequer.
In 2018 my officials produced a report for the Committee on Finance, Public Expenditure and Reform, and Taoiseach on the potential consequences of changes to the tax treatment of losses carried forward for banks. This report, which contains further information and more detailed consideration of the points set out above, is published on my Department’s website.
191. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that would be raised if the remaining action points under BEPS were implemented by the end of 2019. [21945/19]View answer
In September 2018, I published Ireland’s Corporation Tax Roadmap. This roadmap takes stock of the changing international tax environment, outlines the actions Ireland has taken to date and the further actions that will be taken over the coming years to ensure that our corporation tax code is line with international best practices. It outlines the various commitments we have made to tackle global tax avoidance, including those made in respect of the 15 actions of the OECD BEPS Action Plan but it also includes details in relation to the transposition of the EU Anti-Tax Avoidance Directives (‘ATAD’), which comprise measures that directly correspond to specific BEPS actions.
The Country-by-Country (CbC) Reporting, a tool developed by the OECD in accordance with Action 13, and the Knowledge Development Box which is in line with BEPS Action 5 were introduced in Finance Act 2015. Ireland is also fully compliant with the exchange of information on cross border tax rulings requirements in line with BEPS Action 5.
The commitments set out in the roadmap regarding the remaining BEPS actions included commitments with regard to legislation to be introduced in Finance Act 2018. Finance Act 2018 introduced controlled foreign company (‘CFC’) rules (BEPS Action 3) with effect from 1 January 2019. The purpose of CFC rules is to discourage the artificial diversion of income to low tax jurisdictions. As such they are not designed primarily to raise Exchequer revenue, but rather to modify taxpayer behaviour.
The final legislative steps required to allow Ireland to complete the ratification of the BEPS multilateral instrument (BEPS Actions 6, 7, and 15 and certain aspects of BEPS Actions 2 and 14) were also taken in Finance Act 2018. The changes introduced to the application of Ireland’s tax treaties are primarily anti-avoidance in nature and are aimed at stopping international tax planning strategies known as treaty shopping. It is not possible to estimate the potential impact on the Exchequer from the changes that will be made to the application of Ireland’s tax treaties.
The Corporation Tax Roadmap also enumerates further commitments to action over the next two years, including the introduction of anti-hybrid and anti-reverse hybrid rules (BEPS Action 2); an interest limitation ratio (BEPS Action 4); updating of transfer pricing rules (Actions 8-10); further work on mandatory disclosure rules (BEPS Action 12) and dispute resolution (BEPS Action 14). It will not be possible to estimate the impact on the Exchequer of such measures, were they implemented by the end of 2019, until the process of designing the measures is significantly further advanced.
No specific direct tax measures have been recommended to date in addressing the tax challenges associated with the digital economy (BEPS Action 1). Work continues at OECD and EU level in relation to this. As a result, it is not possible to estimate the impact on the Exchequer of BEPS Action 1.
BEPS Action 11 focuses on data collection and analysis. It does not make any specific recommendations in relation to tax changes. It relates to measurement of BEPS and suggests improvements in data collection. Therefore, it is not a revenue raising action and as a result, it is not possible to estimate the budgetary impact of BEPS Action 11.
As I outlined in the roadmap, the confluence of the OECD BEPS outcomes and the most significant US tax reform in recent history is likely to lead to significant changes in the structure of multinationals over the next number of years. The purpose of the programme of changes set out in the Roadmap is to ensure that Ireland remains on a sustainable path for growth and investment in this rapidly-changing international tax environment.
192. Deputy Pearse Doherty asked the Minister for Finance the estimated additional revenue that would be raised by increasing the bank levy by each of 10 percentage points and by 10%; and if he will make a statement on the matter. [21948/19]View answer
Section 126AA of the Stamp Duties Consolidation Act 1999 imposes an annual levy on certain financial institutions on the basis of the amount of deposit interest retention tax (DIRT) payable by them in a specified ‘base’ year. The levy is intended to raise a fixed annual yield of €150M. In relation to the years 2017 and 2018, a rate of 59% was required to yield €150M based on the financial institutions’ DIRT liability for the base year 2015. The year 2017 will be used as the base year to determine the levy for the years 2019 and 2020. As there has been a substantial fall in DIRT payable by financial institutions since 2015 the rate will have to be increased from 59% to maintain the €150M yield.
I recently announced that I intend to bring forward a Financial Resolution on Budget night 2019 increasing the rate of the levy from 59% to 170%, which, when applied to the DIRT payable in 2017, will continue to yield €150M.
Without an increase in the current rate of 59% the levy would yield €52.2M in 2019. Increasing the current rate by 10% would bring the rate to 65% which would yield approximately €5.2M in additional revenue. An increase of 10 percentage points from 59% to 69% would yield approximately €8.8M in additional revenue.
193. Deputy Pearse Doherty asked the Minister for Finance the estimated saving that would accrue from moving the entire cost of regulation of the financial sector onto the industry; and if he will make a statement on the matter. [21949/19]View answer
The Central Bank's total funding requirement for financial regulation activity is determined on an annual basis by the resources required to discharge its legal responsibilities under domestic and EU law. Section 32D and 32E of the Central Bank Act 1942, as amended, provide that the Central Bank Commission may make regulations relating to the imposition of levies and fees on the financial services sector in respect of the recoupment of the costs of financial regulation.
As it stands, the financial services industry currently funds 80% of the costs incurred by the Central Bank for financial regulation, with certain exceptions including the banks which had participated in the Eligible Liabilities Guarantee (ELG) Scheme, namely AIB, Bank of Ireland and Permanent TSB, which are required to fund 100% of the Central Bank's regulatory costs. Credit Unions currently contribute approximately 8% to the cost of their regulation. This means that the subvention from the Central Bank amounts to approximately 20% of the total cost. What this translates to in monetary terms will be determined by the resources required by the Bank to discharge its legal responsibilities during a given year.
In 2017, the full cost of financial regulation activities amounted to €184.9 million (2017: €155.0 million) funded by income of €107.9 million (2017: €77.8 million) and subvention of €76.9 million (2017: €77.3 million).
If industry was fully charged, there would be no subvention, however, there are certain costs (e.g. markets supervision) which it may be appropriate to continue to subvent on an ongoing basis where the costs cannot be attributed to specific firms but do relate to the orderly function of markets and the financial stability agenda.
My officials are liaising with the Central Bank in pursuing a strategy of moving towards full industry funding where appropriate. Further information on timeframes and implications for each industry category will be published in the coming weeks with the release of 2018 Annual Report and Annual Performance Statement.
The 2018 financial statements will also show a reduction in subvention year on year attributable to increases in recovery rates in the 2018 billing cycle.
Further information on the Industry Funding Levy is available on the Central Bank's website as follows:
194. Deputy Pearse Doherty asked the Minister for Finance the estimated savings that would be made by reducing the maximum tax relief available on private pension contributions to percentage rates (details supplied). [21951/19]View answer
195. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that would be raised by reducing the earnings cap for pension contributions from €115,000 to €70,000, €65,000 and €60,000, respectively. [21952/19]View answer
196. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that would be raised from reducing the standard fund threshold from €2 million to €1.3, €1.5 and €1.7 million, respectively. [21953/19]View answer
197. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that would be raised by reducing the tax free lump sum retirement limit from €200,000 to levels (details supplied). [21954/19]View answer
198. Deputy Pearse Doherty asked the Minister for Finance the estimated revenue that would be raised by reducing the earnings cap for pension contributions from €115,000 to €60,000. [21955/19]View answer
I propose to take Questions Nos. 194 to 198, inclusive, together.
Regarding Questions 21951/19, 21952/19 and 21955/19, I am advised by Revenue that the Ready Reckoner, available at link www.revenue.ie/en/corporate/information-about-revenue/statistics/ready-reckoner/index.aspx, shows, on page 11, the estimated cost or yield from changing combinations of (i) the maximum tax relief available on private pension contributions or (ii) the ceiling on the annual earnings limit for determining maximum allowable contributions for pension purposes.
While not all of the scenarios requested by the Deputy are shown in the Ready Reckoner, the others can be calculated on a straight-line or pro-rata basis from the information provided as follows:
Max rate of tax relief on private pension contributions
Full Year yield €m
Annual Earning Cap for pensions contributions
Full Year yield €m
Regarding Question 21953/19, the Standard Fund Threshold is the maximum allowable pension fund on retirement for tax purposes, which was introduced in Finance Act 2006 to prevent over-funding of pensions through tax-relieved arrangements. Information on the numbers and values of individual pension funds or on individual accrued benefits in pension schemes are not generally required to be supplied to Revenue. Therefore, there is no readily available underlying data or methodology on which to base reliable estimates of any possible yield which might be realised from the reductions in the Standard Fund Threshold outlined by the Deputy.
Regarding Question 21954/19, I am advised by Revenue that as there is no requirement to include data in tax returns in relation to tax free lumps of less than €200,000 (the current life-time limit on tax-free retirement lump sums), it is not possible to quantify reliably the estimated yield for the Exchequer from the reductions of the tax free lump sum entitlement set out by the Deputy.
199. Deputy Michael McGrath asked the Minister for Finance the number of instances each year in which the Central Bank has carried out inspections on lenders in relation to the code of conduct on mortgage arrears since it was established; the number of instances each year in which the Central Bank has found that the lenders had not complied with the code; the number of instances each year in which the Central Bank has commenced official enforcement proceedings in relation to the code; the number of instances each year in which the Central Bank has imposed sanctions on lenders for non-compliance of the code; the sanctions in each case; the value of fines in tabular form; and if he will make a statement on the matter. [21986/19]View answer
I have been advised by the Central Bank of Ireland (Central Bank) that in line with their mission of safeguarding stability and protecting consumers, the Central Bank's work on mortgage arrears spans its consumer protection, prudential supervision, and financial stability roles. Within the remit of the Central Bank’s responsibilities, the approach to mortgage arrears resolution is focused on ensuring the fair treatment of borrowers through a strong consumer protection framework while ensuring banks are sufficiently capitalised, hold appropriately conservative provisions, and have appropriate arrears resolution strategies and operations.
Since the Central Bank first introduced the Code of Conduct on Mortgage Arrears (CCMA) in 2009, there have been 23 inspections specifically to test compliance with the CCMA. However, this is just one aspect of our supervisory approach to protecting borrowers in arrears.
2010 Themed Inspection of CCMA
In 2010, the Central Bank undertook a themed inspection across five mortgage lenders to ensure the CCMA had been implemented and was being complied with.
2011 Mortgage Arrears Resolution Strategies
In late 2011, the Central Bank further intensified its engagement with lenders with regard to mortgage arrears resolution. To press banks to remediate these shortcomings and ensure appropriate board-level focus, in October 2011, mortgage lenders were required to submit to the Central Bank board-reviewed and approved mortgage arrears resolution strategies (MARS). The purpose was to ensure the fair treatment of borrowers, supported by detailed implementation plans to deal with their stock of arrears cases as well as new inflows.
2011 Themed Inspection of CCMA
In 2011, the Central Bank published the findings of a themed inspection of six mortgage lenders which examined compliance with the requirements of the revised CCMA specifically relating to charges on mortgage accounts in arrears.
2012 Operational Capability Assessments
The introduction of the CCMA in 2009 set out the framework that lenders must use when dealing with borrowers in mortgage arrears or in pre arrears.
One additional provision of the CCMA in 2011 mandated lenders to establish a centralised arrears support unit (ASU), which must be adequately staffed, to manage cases under the Mortgage Arrears Resolution Process (MARP). The focus in early 2012 centred on further examining and challenging banks’ operational capacity to resolve NPLs, and pressing banks to remediate shortfalls identified during their MARS assessments. Blackrock Solutions was commissioned to undertake an independent Distressed Credit Operations Review (DCOR) focusing on residential mortgage and SME distress management.
During the latter part of 2012 and throughout 2013, the Central Bank continued to challenge banks regarding their operational capabilities and undertook a number of different inspection related activities to review banks ASUs to assess if meaningful progress was being made in their approach to resolving distressed loans. While progress was being made, gaps were identified particularly in the 2012 and early 2013 inspections.
2013 Mortgage Arrears Resolution Targets
In early 2013, the Central Bank introduced the Mortgage Arrears Resolution Targets (MART) framework. Through MART, the Central Bank imposed quarterly quantitative targets on the six main mortgage lenders (accounting for approximately 90 per cent of the Irish mortgage market) on Republic of Ireland principal dwelling home/primary residence and buy-to-let mortgage portfolios. The targets were focused on resolving arrears greater than 90 days.
The Central Bank also introduced enhanced supervisory reporting requirements to monitor and challenge progress by banks in implementing sustainable solutions. On-site credit inspections by the Central Bank examined samples of these sustainable solutions during the MART programme.
2015 Themed Inspection of the CCMA
In 2015, the Central Bank published the outcome of a themed inspection of seven lenders’ compliance with the CCMA. https://www.centralbank.ie/docs/ccma-themed-inspection
Formal supervisory requirements, with specific timelines for remediation, were imposed on those lenders where the Central Bank identified risks to borrowers.
No firm has been sanctioned for a breach of the CCMA to date.
2018 Inspections of the CCMA
In 2018, the Central Bank undertook five inspections in relation to the CCMA including some that contributed to the review into the effectiveness of the CCMA (Section 6(a) Report).
In addition, the Central Bank has also conducted and published research on consumers’ experience of the Mortgage Arrears Resolution Process. Consumer explainers and guides on the CCMA, have also been published by the Central Bank.
200. Deputy Michael McGrath asked the Minister for Finance his views on the impact of putting the code of conduct on mortgage arrears on a statutory footing either through primary legislation or secondary legislation by way of regulation; and if he will make a statement on the matter. [21987/19]View answer
The Code of Conduct on Mortgage Arrears (CCMA) is already a statutory Code that was put in place to ensure that lenders have fair and transparent processes in place for dealing with borrowers in or facing mortgage arrears. Section 117 of the Central Bank Act 1989 provides the Central Bank with the power to impose Codes of Conduct, including the CCMA.
I am advised by the Central Bank that such codes of conduct are required to be complied with as a matter of law of any regulated entities to whom they apply. The Central Bank has the power to take action, up to and including enforcement action, against any regulated firm for non-compliance with a Code (for example by imposing a direction on such entity or taking enforcement action under the Central Bank’s Administrative Sanctions Procedure).