Friday 23 February 2018

US bids in for Nama loans despite looming tax change

Michael Noonan
Michael Noonan
Donal O'Donovan

Donal O'Donovan

Funds that own billions of euro of Irish property and loan assets are likely to be hit with a new withholding tax in a measure to be spelled out in Michael Noonan's Finance Bill today.

The prospect of a tougher tax regime has been seen by some in the property sector as leading to a decline in investor appetite. However, a long list of bidders for Nama's so-called Project Gem suggests demand for Irish assets remains robust.

Three US funds, Apollo, Cerberus and Oaktree are understood to be among a longer list of prospective buyers that have submitted bids ahead of an October 18 deadline for €3bn of loans being sold by Nama in its Project Gem disposal.

It is a portfolio of predominantly commercial mortgage loans and is secured by 392 properties, mostly in Ireland.

First round bids are now in for the loans, which have a face value of €3bn, but are likely to sell for well below that level.

Even so, the bids coming ahead of the new tax regime for funds suggests investors remain interested in assets here.

The idea is to levy the tax on Irish income generated by the assets regardless of where the owners are domiciled.

The move to beef up taxes on property income follows public disquiet at the tax-free profits being generated by mostly big US funds that bought assets here at knockdown prices in the Crash.

The new tax regime is expected to apply to structures used by those investors to cut their taxes, in some cases to nothing, including qualifying investor alternative investment funds (QIAIFs), Irish collective asset management vehicles (Icavs) as well as so-called Section 110 companies.

Unsurprisingly, funds that relied on the then tax-free structures when they bought Irish assets, including to calculate how much they would pay, are pushing hard to minimise the impact of the taxes, with intensive lobbying reported in recent weeks.

In the Budget earlier this month, the minister indicated that the new tax treatment could generate €50m a year in additional taxes for the State, but that's seen by many as a very conservative assessment given the scale of assets held by funds.

It's unlikely the new taxes can be applied to profits already generated and repatriated by the investors, but future profits on assets bought since the Crash are set to be hit.

Introducing a withholding tax would bring the tax treatment for owners of property through structured investment vehicles in line with investors.

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