Michelle Moran and Roughan MacNamara of Focus Ireland launching the charity’s campaign calling for legislation to fully protect Irish homes from vulture funds in August
First-Time Buyer writes:
Effective lobbying is done as quietly as possible behind the scenes, ensuring that you get the result you were looking for without anyone else being the wiser…
Back in September, Minister for Finance Michael Noonan proposed a number of changes to Section 110 of the Taxes Consolidation Act 1997 which contains the provisions for Ireland’s securitisation regime.
This was on the back of various concerns raised in the media that “investors” (foreign funds) were using the legislation to avoid paying tax on Irish property by using S110 Special Purpose Vehicles (“SPVs”) for their transactions.
The Irish securitisation regime is very generous in that it permits certain companies to deduct interest payments on profit participating debt (i.e. loans where the interest rate is directly linked to the underlying profits of the SPV rather than a set rate).
In effect, this means that these SPVS could wipe out all of their profits with interest deductions leaving only a very small taxable margin (usually €1,000). These SPVs were making tens of millions from Irish property, but effectively were only paying as little as €250 to Revenue.
The aim of the amendments to the regime were to ringfence profits arising from a property business and ensure that a deduction was not available for profit participating interest.
This would protect the Irish tax base by ensuring these SPVs would pay tax at 25% on all of its Irish property profits, rather than only on the token €1,000.
A property business was originally defined as one which is involved in the holding or managing of “any financial asset which derives its value, or the greater part of its value directly or indirectly, from land in the State”.
When interpreted this would include property loans and mortgages but also shares in a company which derive its value from Irish property (e.g a Limited company that holds property, also known as a “Propco”).
What nobody noticed though was that in the time between the publishing of the original legislation in September to the publication of the Finance Bill in October a very deliberate change was made to narrow the definition of ‘specified mortgage’.
Such a narrowing means this anti-avoidance legislation is now only confined to loans and specified agreements deriving their value from Irish land but not to shares in a Propco (more on why below).
At the same time of this deliberate change, the Government included another, seemingly unrelated, measure to restore 100% interest deductibility for landlords of residential properties. This generous tax break encourages Propcos to be highly geared, to ensure their rental profits are significantly reduced by interest deductions.
When you combine these two measures it means the ‘investors’ will warehouse their Irish properties into simple Propcos, rather than the complicated SPVs, QIAIFs or ICAVs that we’ve been reading about in the media.
The investors will own the Propcos, via their existing S110 SPVs. They will fully leverage the Propco with related party debt, maximising the new 100% interest deductibility rules. This will ensure that any income arising will be fully sheltered by tax deductions, thus a continuing ability to avoid tax on the Irish rental profit.
In addition, the investor can avoid capital gains on a disposal of the property by simply selling the shares in the Propco rather than selling the property asset directly.
The gain on the sale of the shares of the Propco will arise to the S110 SPV and because the definition of ‘specified mortgage’ does not include the sale of shares, the SPV can use profit participating interest to wipe out its gain on the sale.
You couldn’t make this up.
Related: Vulture funds hit by political cave-in on tax reprieve (The Irish Times, November 22, 2016)
Previously: Mars Capital, Matheson And The €250 Tax Bill
Sasko Lazarov/Rollingnews
What a crowd of absolute lady gardens.
Interesting choice of edit there BS. I’ll accept it though.
Banch of Cants!
Sleaford Mods say it best.
https://youtu.be/GywXakOTlr4
Ha ha!
Meanwhile people in Ireland pay 55% income tax. Nama has blown its load, the banks have limited exposure, Noonan is bang out of order doing this.
irish government facilitates tax avoidance again, they should be ashamed of themselves but sociopaths can’t fell shame.
How can I get some of this action?
Pimpers paradise.
Rental income is replaced by interest income. Interest income is taxable.
How about making it law
Disqualify the transfer of secured loans on Residential Dwellings to any other party/ entity
Make it a Central Bank regulation that these type of loan assets cannot be bundled off and sold
Ireland is not run like a country. Its like a playpen for millionaires. WTF!!
look who we elect
now that is a proper contribution. fair play FTB.
+1
I can’t imagine the door getting kicked-in by suited thugs backed-up by the Gardaí to evict a family out onto the street for reasons beyond their control – humiliating is one of the feelings I’d imagine would go through a father/husbands mind, humiliated in front of their family – a US commander conceded during the Vietnam war when it looked like the US was losing – “there is no weapon more dangerous than a man humiliated in front of his family” – if mass evictions happen – mass disturbances are 100% inevitable, logically.
The Government included another, seemingly unrelated, measure to restore 100% interest deductibility for landlords of residential properties
Just wondering, was this not increased from 75% to 80% (not 100%) ?
Noonan has reached a point in his career when he can do whatever he likes. He’s not going to run for re-election so he can be completely blatant when facilitating tax avoidance.
None of these schemes are accidental. The Dept. of Finance doesn’t accidently create loopholes. They sit down with the likes of PWC and create these scenarios on purpose.
The current housing and rental crisis was completely forseeable, engineered and facilititated by our government. We can wring our hands all we like but it’s our necks that are, in fact, being wrung.
+1. Nice and articulate. Well put.
I agree, a concise summing up of the situation by mcgruber
Also complete horlix
Wrong Kieran in Ballyfermot.
Anne of Green’s Stables
– why the long face?
Ferret is correct, this is a manufactured crisis to enrich these thugs.A brown envelope bonanza boom.
This is just legislating putting another box in a box for the same effect
As the vultures can invest in property in Ireland effectively tax free, they are blowing a mighty bubble, especially in Dublin. This accelerates the spiral of rising rents an property prices (especially commercial).
In-depth analysis over at the Pin: http://www.thepropertypin.com/viewtopic.php?f=4&t=66282
(careful, that’s very depressing to read)