Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

The Deputy has tabled an amendment on 20% as opposed to 90%. Regarding what we are achieving with the 20%, we need to remember the marginal rate of tax in the 1980s was 65%. The 80% tax introduced that was introduced by the National Asset Management Agency Act 2009 was on windfall gains, not normal gains. We have never had an income tax rate close to the rate suggested in the amendment and as the Deputy put in his comments.

The 20% rate is the standard rate of income tax. It is the rate of dividend withholding tax that applies to distributions by Irish companies and it is the rate of withholding that applies to dividends from real estate investment trusts, REITs. The proposed 20% Irish real estate fund, IREF, withholding tax is a full and final liability. The income cannot be reduced by any expenses or losses and the rate of tax can only be reduced by a double tax treaty where the unit holder is a portfolio investor who holds less than 10% of the units in a fund.

By way of comparison, the equivalent rate in Germany is 26.375%, the UK is 20%, Italy is 26% and Spain is 19%. Therefore a rate of 90% or anywhere near that rate would be completely out of sync with international norms.

The Deputy had a question on the 25% threshold in so far as the 96 funds are concerned. I already had a discussion with Deputy Donnelly on the reasoning for the 25%. That is there to ensure we are capturing those funds whose only business is the play they have made in Irish property or Irish property-backed assets. There is another main purpose test in the legislation. If they are less than 25% but the purpose of the fund's operations is to make that gain, they will be captured under the legislation.

In general, funds are taxed at the level of the investor. They are a means of making collective investments, diversifying risk and perhaps leveraging knowledge in a particular space. It avoids making a blind investment and gives greater investment power than an individual investor would otherwise have. In discussing earlier sections of the Finance Bill we referred to small investments in a start-up operation. Through a fund, they can make a more diverse investment in an area where as individuals they might not have been able to invest previously.

The fund would operate as follows. We have the idea of the fund being able to grow without taxation - a gross roll-up - so the taxation point comes not every time the fund grows but when that profit or income is paid out to the investor. They then pay tax as an investor in Ireland - at 41% for an individual - or in another jurisdiction.