End of a tax era
Bashing investors doesn't come naturally to Michael Noonan but scrapping rules that favour vulture funds is a sign of a wider change, writes Donal O'Donovan
'That's me f***ed," was the immediate reaction of one Dublin employee of a US investment firm after Tuesday's dramatic announcement that tax rules for so called vulture funds were being tightened with immediate effect.
The politics of the move are blazingly obvious. It is patently unfair that massive US investment funds pay little or no tax, especially at a time when the tax burden on ordinary workers has never been higher.
Worse, many of those funds stand to reap fortunes after snapping up Irish property assets at knock-down prices during a crash. That grates in a market where even a basic house is beyond the reach of many ordinary tax-paying workers.
By Thursday, my man at the loan fund was happily on his way to an investment meeting. The lure of big profits is still enough to maintain his bosses' interest in the market here, for now. But Ireland has suddenly become a colder house for investment funds, a place where unpredictable things now happen with dramatic speed.
Three years ago large multinationals got a similar jolt when the Irish Government moved, though far less rapidly and after far more prodding, to shut the so-called Double Irish tax loophole. It had allowed big companies to send billions of euro in profits from Ireland to subsidiaries that were tax resident nowhere. The Double Irish would have been laughable if it wasn't destroying Ireland's international relationships. It had to go.
Whether it's a result of the great crash and austerity, or simply that ordinary people eventually rumbled what was going on, campaigns for tax fairness are now a global phenomenon. Ireland has been under fire from politicians abroad for helping multinationals like avoid billions on taxes over decades. In the past three years the condemnation has run the gamut of US and European policy makers from the political left to right.
Perhaps most embarrassingly that's included US President Barak Obama - who we all thought was duty bound to love our quirky ways. But even Obama drew the line as a trickle of big US companies reinventing themselves as Irish threatened to turn into a flood. When pharmaceuticals giant Pfizer looked like shifting its headquarters, and tax bills, to Dublin the US drew the line.
In the past month the European Commission launched its case insisting that Ireland provided illegal state aid for Apple. That looks shaky in the extreme, not because Ireland wasn't generous to multinationals but because far from special treatment the whole country knows a soft corporate tax regime was equally available to any corporate giant that sought it.
On the home front, its the zero and near zero tax rates applying to property investors that have provoked a tax backlash.
As this newspaper has noted in recent weeks, there is a fundamental unfairness in a system that insists accidental landlords can end up paying 55pc of their revenue in taxes while industrial scale investors don't even pay tax on their profits.
A general whiff that they have had it too easy, combined with a distinct hint of xenophobia, meant foreign so called vulture funds were first in the tax firing line.
The answer, from Government was shutting the controversial Section 110 tax treatment for companies that own loans backed by Irish property assets.
Financially it's a no brainer, the move levels the playing pitch by wiping out as much as a quarter of the profits expected by international investors who piled into the Irish market after the crash - and does so while diverting cash back to the State's coffers.
The vulture funds, among others, will spend this weekend licking their financial wounds. Some might cast their wings elsewhere. The recovery here means Ireland no longer throws up the once-in-a-life-time opportunities that brought them here in 2010 and 2012. Italy, Greece and potentially post-Brexit Britain are the next big things in financial distress. But they'll leave a changing Ireland.
Although described as a "loophole" Section 110 didn't happen by accident. The rules were deliberately created to draw funds, and jobs, to the IFSC. Like the Double Irish, most of us were happy enough with that, until the glaring contrast between tax winners and tax rules came too close to home.