Tuesday 23 January 2018

Noonan told of investment 'risk' if tax laws change

Finance Minister Michael Noonan has been warned of the risk of a flight of international capital. Photo: Frank McGrath
Finance Minister Michael Noonan has been warned of the risk of a flight of international capital. Photo: Frank McGrath
Dearbhail McDonald

Dearbhail McDonald

The Government has been warned that there could be a capital flight of international investment funds, with adverse impacts on the domestic property market, if changes are made to 'tax-neutral' laws used by overseas funds to acquire and manage Irish property assets.

Hundreds of millions of euro worth of property deals have been stalled amid fears that Finance Minister Michael Noonan will restrict the tax-free exemptions enjoyed by Qualifying Investor Alternative Investment Funds (QIAIFs) and other tax structures, such as Irish Collective Asset-management Vehicles (ICAVs) and Qualifying Investor Funds (QIFs).

Capital investment has also been suspended pending tomorrow's Budget and the forthcoming Finance Bill, in which the changes are expected to be unveiled.

Last week, officials from the Department of Finance met investment funds, who are understood to have stressed that unlike so-called 'vulture funds' they invested in Ireland for the long term, based on prevailing tax structures.

Mr Noonan has already moved to restrict the tax-free benefits enjoyed by Special Purpose vehicles (SPVs) - mostly US private equity firms - that have used S110 of the Taxes Consolidation Act 1997 to legally avoid paying tax on distressed property assets, including mortgage loans.

And he is expected to clamp down on QIAIFs and ICAVs amid concerns that they are being used by investors to avoid paying tax on rental income and profits derived from their Irish loan books.

Mr Noonan has been urged to amend the law to allow global Real Estate Investment Trusts (REITs) to operate here.

Such a move would allow unit holders in REITs - which are generally exempt from taxation at the trust level - to pay tax on the income derived from Irish profits in the country where they live, rather than here.

Under current legislation, REITs can only operate in Ireland if they are an Irish incorporated company.

However, the Government is understood to be strongly opposed to the proposal, insisting that profits derived from Irish loan books must be paid here.

Independent TD Stephen Donnelly, who has highlighted potential abuses of Ireland's 'tax-neutral' laws by companies pursuing aggressive tax-avoidance strategies, said the Irish funds industry has nothing to fear from changes, such as a dividend withholding tax being imposed on Irish profits.

"This is not about material changes to the funds industry, it's about stopping a small number of companies using our tax laws in ways they were not intended to be used," said Mr Donnelly, formerly the co-leader of the Social Democrats.

He added: "Ireland's reputation as a transparent, regulated, low-tax economy could be put at risk by ICAVs, QIAIFs and by S110s being used in the domestic economy."

Irish Independent

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