Saturday 1 October 2016

Minister ends property vultures' feast on carrion of Ireland's bust

Published 07/09/2016 | 02:30

Michael Noonan. Photo: Frank McGrath
Michael Noonan. Photo: Frank McGrath

The death of the (property) vultures came gradually. Then suddenly.

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Last night Finance Minister Michael Noonan moved swiftly (or so it seemed) to end the feast on the carrion of Ireland's bust by the "vultures".

The so-called vultures are funds, many of which are controlled offshore, who lawfully avoided paying tax on the purchase of assets, including distressed property assets, in Ireland.

This is no 'loophole'.

The decision to create S110 of the Taxes Consolidation Act 1997 - a law permitting and, indeed, promoting tax neutrality - was no accident.

It was the intent of the Government to create a structure to allow investors to acquire, manage and trade in a vast range of assets, including non-performing loans and mortgages, in a tax-neutral manner.

S110 was an instant hit and, despite 'Vulturegate', remains the cornerstone of Ireland's onshore debt-securitisation regime.

Because of its importance, the law was extended five years ago to include even more 'qualifying assets'.

It is a crime to use S110 for tax avoidance, but how many prosecutions have there been?

Not one.

We need to get real though, too.

We didn't care when the vultures were paying no tax on their foreign assets. It was only when Ireland became the largest distressed asset market on the planet that the reality hit home - literally - and there was a public outcry when we realised the vultures with nice names were paying no tax on our mortgages and other distressed loans books.

The notion that the current (or former) governments have been suddenly caught off guard by the suspected abuse of S110 by overseas real estate funds is beneath contempt.

As the European Commission beefed up its investigation into the tax treatment of tech giant Apple, the Revenue Commissioners (around 18 months ago) quietly sent out more than 40 "compliance intervention" Q&As - ie, an audit of certain S110s. The funds industry, the politicians and the coterie of experts advising the gargantuan S110 property funds knew then the game was up.

But it took ferocious groundwork by former Social Democrat leader Stephen Donnelly, and the public fallout over the Apple ruling, to lead to last night's critical amendment.

The dra ft amendment keeps intact the core S110 architecture so vital to the financial services sector.

However, it restricts tax deductions to property funds that are not paying tax in Ireland - or are not in an EU double tax treaty country - on the profits derived on their Irish loan book.

Some funds are apoplectic that their 'legitimate expectations' have been breached; they will complain that the proposed law is retrospective (it's not) and have warned that they may have to restructure or face taxes of up to 25pc. So be it, you might say, have they not feasted for long enough?

Irish Independent

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