I propose to take Questions Nos. 162 to 165, inclusive, together.
I will first refer to the Deputy's question relating to details of the property-related tax incentives that are available for all types of investment funds. I would like to advise the Deputy that there are no property related tax incentives for investment funds.
Irish collective investment vehicles which are authorised and regulated by the Central Bank of Ireland are taxed under the gross roll-up regime. This means that the investment undertaking is generally exempt from tax on the profits it earns on behalf of its unit holders. The profits are allowed to grow on a tax free basis within the fund and are taxed at the level of the investor rather than the fund, as is standard international practice. Investment Undertaking Tax (“IUT”) is deducted at source by the investment undertaking and paid over to Revenue on behalf of the unitholder. In general, IUT does not apply to non-resident investors provided the relevant declarations are in place with the investment undertaking.
Finance Act 2016 introduced the Irish Real Estate Funds (IREF) regime in response to concerns raised regarding the use of certain collective investment vehicles to invest in Irish property. The investors had been using the structures to minimise their exposure to Irish tax on Irish property transactions. IREFs are collective investment undertakings where 25% or more of the value of their assets is derived from real estate in the State. Unit holders in the Irish Real Estate Fund are subject to IREF withholding tax at a rate of 20% on payments made to them by the Irish Real Estate Fund. As with IUT, the IREF withholding tax is deducted by the Irish Real Estate Fund and paid to Revenue on behalf of the unit holder. Unlike IUT, non-resident unit holders are also subject to IREF withholding tax. In some circumstances the non-resident can make a claim to Revenue that the IREF withholding tax can be reduced under the terms of a double taxation treaty. However, if a unit holder in an Irish Real Estate Fund holds more than 10% of the assets of the Irish Real Estate Fund, any payment from the Irish Real Estate Fund will be regarded as from immovable property and the IREF withholding tax deducted can not be reduced. This contrasts with the gross roll-up regime where non-residents are exempt from exit tax entirely.
For both the gross roll-up regime and the IREF regime certain categories of investors such as pensions schemes, companies carrying on life business and charities are exempt from IUT and IREF withholding tax provided the appropriate declarations are in place. This exemption is provided for as these categories of investor are more generally tax exempt.
In addition to the above and in the context of the question asked by the Deputy it may be appropriate to include commentary on the Real Estate Investment Trusts (“REITs”) regime. While REITs must be Plcs which are listed on the main exchange of an EEA Member State, the Central Bank of Ireland requires that they have an Alternative Investment Fund Manager (“AIFMs”). REITs are used as collective investment vehicles to invest in Irish rental property assets. While they are not generally, in tax terms, described as funds, they are collective investment vehicles which are subject to Central Bank regulation and supervision and therefore may be within the scope of the Deputy’s question. 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 to property investment via a corporate vehicle. Subject to various conditions, REITs are exempt from tax in respect of their property rental business, subject to a requirement to distribute profits annually for taxation at the level of the investors. This distribution is subject to Dividend Withholding Tax (“DWT”) at 20%.
In relation to the Deputy's question on annual tax yields, I am advised by Revenue that it is not possible to separately identify investment funds holding property or property related assets or holding shares and units in property or property related assets. However, the aggregate amounts of taxes paid by entities of this type, including tax paid by Real Estate Investment Trusts (REITs) and Irish Real Estate Funds (IREFs), are provided under ‘Financial & Insurance activities’ in the ‘Revenue Net Receipts by Sector’ information available at link: https://www.revenue.ie/en/corporate/information-about-revenue/statistics/receipts/receipts-sector.aspx.
The Deputy may be interested to note that the amount of IREF withholding tax in 2018 was €9m, while net Dividend Withholding Tax amounting to €11.8m in 2017 and €12.8m in 2018 was collected in respect of dividends paid by REITs.
I refer now to the Deputy's questions regarding the value of investments in property or property related assets located in Ireland held by investment funds, domiciled in both the State and abroad.
I am advised by Revenue that it is not possible to identify the value of investments in property or property related assets held by investment funds domiciled in the State from the information filed with Revenue.
In respect of Irish Real Estate Funds (IREFs), only partial information is available from the IREF tax returns filed with Revenue for the years 2017 and 2018. In this regard, IREFs are required to file an IREF tax return only where they have a taxable event in a particular year and therefore not all IREFs will have made returns for these years. IREFs, were required by regulation to file annual financial statements on or before 30 January 2019 with Revenue for accounting periods which ended during 2017 and accounting periods which ended on or before 30 June 2018. The information contained on the financial statements is currently being reviewed and analysed by Revenue. Once this analysis is completed, Revenue will be in a position to provide more detail on the value of Irish real estate held by IREFs.
Irish domiciled funds are all treated as “investment undertakings” under the TCA 1997. Revenue collects annual financial statements from IREFs (being the Irish domiciled funds that had significant exposure to Irish property) but it does not collect the same data for non-domiciled investment funds.
A small number of non-domiciled funds may be indirectly investing in Irish property. This matter is currently receiving attention in Revenue, and any Exchequer exposure is being kept under review. Funds are described as non-domiciled in Ireland if they are administered here but subject to regulation by a regulator other than the Central Bank of Ireland, e.g. they are regulated in the UK.
Non-domiciled funds are, under the Tax Consolidation Act 1997, treated in the same manner as any other non-resident taxpayer when it comes to charges to tax in relation to Irish property. While section 1035A and section 747G both provide that a non-domiciled fund will not be treated as having a taxable presence in Ireland by virtue of fund management services provided by an independent agent, they do not dis-apply the standard Irish property charging provisions (e.g. s.29 for CGT). Therefore, if a non-domiciled fund has Irish property, or an interest in Irish property (for example through a shareholding in a non-resident Property Company), it will be subject to Irish tax on its profits or gains in the same way as any other non-resident, depending on the relevant double tax agreements that may be applied.