I propose to take Questions Nos. 204 and 205 together.
Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. The function of the REIT framework is not to provide an overall tax exemption but rather to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle.
Property rental income and gains arising are exempt from tax within the REIT and are taxed at the investor level when distributed. The legislation requires that 85% of all property income profits be distributed annually to shareholders. The REIT is subject to corporation tax on income and gains not arising from the property rental business of the REIT.
Introduced in Finance Act 2016, Irish Real Estate Funds (IREFs) are investment undertakings, excluding UCITS, where at least 25% of the value of that undertaking is made up of Irish real estate assets.
The IREF provisions addressed the concerns raised regarding the use of collective investment vehicles by non-residents to invest in Irish property. The investors had been using the structures to minimise their exposure to Irish tax on Irish property transactions.
IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors. REITs must also deduct withholding tax on distributions to shareholders. In both cases the withholding tax does not apply to certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings as these funds also operate on a gross-roll-up basis with tax payable by the pensioner/investor (as relevant) on receipt of income or distributions.
Information in relation to the proportion of property in REITs and IREFs held by EEA pension funds is not readily available. However the Deputy will recall a commitment I made during committee and report stages of the 2018 Finance Bill process regarding the preparation by my officials of a policy paper relation to the impact of the REITs, IREF and section 110 regimes on the property market. This will include research into the investors in such funds and the resulting report will be presented before the Tax Strategy Group this summer.