Tuesday 27 September 2016

Revenue probes 40 'tax-neutral' companies for suspected abuse

The controversial S110 tax law has soared in popularity, write Dearbhail McDonald and Gavin McLoughlin

Dearbhail McDonald and Gavin McLoughlin

Published 24/07/2016 | 02:30

Section 110 was introduced in 1997 to allow the IFSC win global securitisation deals, and has continued under Michael Noonan
Section 110 was introduced in 1997 to allow the IFSC win global securitisation deals, and has continued under Michael Noonan

The Office of the Revenue Commissioners is investigating at least 40 Section 110 Special Purpose Vehicles amid claims that the 'tax-neutral' law is being used by companies and funds, many of which are controlled by offshore entities, to avoid paying tax on the purchase of distressed property and other assets in Ireland.

  • Go To

Section 110 of the Taxes Consolidation Act 1997 is regarded as the cornerstone of Ireland's onshore debt-securitisation regime.

The vehicle allows investors to acquire, manage and trade in a vast range of assets, including securities, aircraft, financial assets and non-performing loans, such as mortgages, in a tax-neutral manner.

The law was extended five years ago to include a broader range of 'qualifying assets', such as commodities and carbon offsets.

Qualifying Irish tax-resident SPVs can lawfully engage in an extensive range of financial and leasing transactions in a tax-neutral manner.

As long as payments out match payments in, S110 securitisation vehicles pay virtually no tax, if any.

There are now more than 2,100 S110 SPVs operating in Ireland, whose popularity has more than trebled since 2010 when €74bn (par value) worth of toxic property debts were transferred to the National Assets Management Agency.

But following the extensive use of S110 vehicles in the acquisition of distressed property assets, Revenue has launched a sample audit - known as compliance interventions - into suspected abuses of the generous law.

Since 2011 it is an offence to use S110 for avoidance of Irish tax, but there has never been a prosecution.

The Revenue is also understood to be monitoring the increased use of other innovative corporate structures, such as qualifying investor alternative investment funds (QIAIFs) and the more recent Irish Collective Asset management Vehicle (ICAVs), which are both fully exempt from Irish tax on their income and profits.

The Revenue told the Sunday Independent that individual Section 110 companies included in its audit had been selected for compliance intervention based on "various risk indicators".

"I can confirm that interventions are currently under way in respect of a number of such companies," said a Revenue spokesperson.

Section 110 companies were established in 1997 to encourage financial firms to engage in activities here and have been a huge success.

Their popularity has soared in recent years: there were 124 new S110s notified to the Revenue in 2010, rising to 404 last year.

However, Finance Minister Michael Noonan said he was willing to make changes to legislation on foot of Revenue's enquiries.

"I understand officials from the Department of Finance and the Revenue Commissioners are currently examining coverage concerning the use of certain vehicles for property investments," he said, in response to a parliamentary question from Wicklow TD Stephen Donnelly, joint leader of the Social Democrats, who claimed in the Dail that so-called vulture funds "were about to pull off the largest avoidance of tax on Irish profits in the history of the State" via their Section 110 status.

"Should these investigations uncover tax-avoidance schemes or abuse, which erodes the tax base and causes reputational issues for the State, then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for my consideration," Noonan said in a reply to a series of parliamentary questions posed by Donnelly.

Sunday Indo Business

Read More

Promoted articles

Editors Choice

Also in Business