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Tax Avoidance

Dáil Éireann Debate, Tuesday - 27 March 2018

Tuesday, 27 March 2018

Ceisteanna (180, 183)

Joan Burton

Ceist:

180. Deputy Joan Burton asked the Minister for Finance if he has further examined the issue of tax avoidance by so-called vulture funds; if such entities are subject to corporation tax in respect of interest earned and other banking activities here; and if he will make a statement on the matter. [13667/18]

Amharc ar fhreagra

Brendan Howlin

Ceist:

183. Deputy Brendan Howlin asked the Minister for Finance if the issue of tax avoidance by so-called vulture funds has been further examined; if such entities are subject to corporation tax in respect of interest earned and other banking activities here; and if he will make a statement on the matter. [13623/18]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 180 and 183 together.

The term "so-called vulture funds”, while not being consistently defined, is often used in public discourse to refer to variety of different types of investors from banks to private equity to small groups of individual investors.  In recent times, a common feature of these investors is that they have acquired loan books, often but not exclusively, where the loans were in the non-performing category. Recently the term has also been used to refer to groups of investors that have broadened their scope to become active in other parts of the Irish financial services market.  

However for the purposes of the reply from a taxation perspective, I assume the Deputies are referring to the use of the section 110 regime which is often linked to the debate on the activities of such funds.

Section 110 is intended to create a tax neutral regime for bona-fide securitisation and structured finance purposes.  It has been part of our corporation tax code since 1991, with significant amendments in 2003.  Securitisation involves the creation of tradeable securities out of an income stream or projected future income stream generated by financial assets.  The transaction can involve the use of a special purpose securitisation vehicle to facilitate the transaction and issue the securities.

Securitisation allows banks to raise capital and to share risk, and by providing a repackaging and resale market for corporate debt, it lowers the cost of debt financing. 

A section 110 company will be taxed on all of its income but will obtain a deduction for its expenses paid out to investors.  Effectively, the investors will be taxed in accordance with

the rules in their own jurisdiction.  

The section 110 regime was designed to improve Ireland’s offering as a location for the conduct of financial services.  It has achieved that broad goal and the financial services industry now makes use of these vehicles as a support to financial intermediation.  Such financing is useful for the productive economy as it can underpin the supply of finance to industries and companies in Ireland, Europe and further afield.  

Ireland is not unique in having a specific regime for securitisations. The importance of securitisation has been recognised by the European Commission through their work on the Capital Markets Union.  This is a European Commission initiative to mobilise capital in Europe.  A main objective of which is to build a sustainable securitisation regime across the European Union.  The Capital Markets Union specifically states how alternative sources of finance are more widely used in other parts of the world, and the widely held view is that should play a bigger role in providing financing to companies that struggle to get funding, especially SMEs and start-ups.

Section 22 Finance Act 2016 restricts the use of the section 110 regime to minimise Irish tax liabilities on Irish property or distressed debt transactions.  The core effect of the amendment removes the possibility for section 110 companies to use what are known as 'profit participating notes,' or PPNs, to sweep Irish property or distressed debt profits out of the company in a way that ensures little or no Irish tax liability arises.

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