Wednesday 21 November 2018

Pepper hit with €3.7m bill after tax appeal defeat

Finance firm stumps up after losing lengthy battle with Revenue Commissioners over bid to utilise loan book loss

Mortgage servicing and lending firm Pepper Ireland paid €3.7m in back tax to the Revenue Commissioners last year after it failed in its efforts to offset €129m in historic losses against future tax liabilities. (stock image)
Mortgage servicing and lending firm Pepper Ireland paid €3.7m in back tax to the Revenue Commissioners last year after it failed in its efforts to offset €129m in historic losses against future tax liabilities. (stock image)
John Mulligan

John Mulligan

Mortgage servicing and lending firm Pepper Ireland paid €3.7m in back tax to the Revenue Commissioners last year after it failed in its efforts to offset €129m in historic losses against future tax liabilities.

It was reported last year that Pepper Ireland, part of the Australian Pepper Group which is owned by private equity giant KKR, had lost a case brought to the Tax Appeals Commission, which resulted in the payout.

The amount of the settlement made with the Revenue Commissioners as a result of losing that case was not revealed at the time.

Pepper bought a mortgage loan book with a face value of €600m from GE Ireland in 2012. The loan book was distressed, and was reportedly sold for about 40pc of its face value.

Pepper subsequently looked to utilise losses in the loan book as a deferred tax asset, which would have enabled it to offset future tax liabilities against those losses.

That could have seen Pepper Ireland having no effective tax liability until such a time as it had used up the €129m deferred tax asset.

The Revenue Commissioners objected to Pepper's plan in 2014. The finance firm then appealed that decision, with a determination made at the end of 2016.

"I have determined above that the trade that gave rise to the loss is not the same trade as the trade which gave rise to the income against which the Appellant [Pepper] sought to offset the loss and I have determined that loss relief is not available," said the appeal commissioner.

The latest set of accounts for Pepper Ireland, which have just been filed, show that the firm paid €3.7m last year as a result of an underprovision for corporation tax.

The accounts also show that pre-tax profits at the firm fell by a third last year to €5.6m as revenue from its loan servicing activities declined from €46m to €42m.

Pepper Ireland manages about €16bn of loans for customers including Danske Bank and Bank of Scotland.

"Adjusted for one-off non-recurring items, these are a strong set of financial results at a pre-tax operating profit level and continue to recognise Pepper's position as one of the most successful servicers in the Irish market," said Pepper Ireland CEO Cormac Ryan.

The €16.1bn of assets under management at the end of 2017 compared to €17bn at the end of 2016. However, during 2018 the company has secured significant additional servicing mandates, with lenders such as Leeds Building Society.

Last month, Pepper Ireland exited the residential mortgage market in Ireland, having entered the business in 2016.

It sold a €200m portfolio (face value) of mortgages, held by about 900 borrowers, to Finance Ireland, the company founded by Billy Kane, a former CEO of Irish Permanent. Finance Ireland is backed by the State's Ireland Strategic Investment Fund.

The €200m of residential mortgages that Pepper had at the time the sale was announced last month compared to €113.1m in residential mortgages it had in issue at the end of 2017, and €27.6m at the end of 2016.

In 2017, Pepper also launched mortgage lending activity aimed at commercial properties and professional buy-to-let borrowers. It continues to be involved in that activity.

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