Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

-----it paid income tax. If, however, it was non-resident, no corporation tax, capital gains tax or withholding tax was paid and the company might or might not have been paying income tax in its own country.

The amendment changes the names of the funds and calls them real estate funds, but there will still be no corporation tax and no capital gains tax paid. However, there will now be a 20% withholding tax. An Irish resident will pay income tax on whatever money he or she gets from the hotel company, now called an IREF, but will be given a tax credit for the withholding tax. The only tax that will be paid in the operation of the hotel is the income tax of the shareholder, the owner of the fund. The amendment applies the 20% withholding tax to somebody who lives or pretends to live abroad to make sure we get something. In the context of what is happening in the property market, it is reasonable to say that, while a lot of people pay no tax, this measure will capture some tax, but a few years ago, before the ICAVs and REITs were introduced, trading tax was paid - it will not now be paid - while capital gains tax was paid by the company when it sold the hotel. That will not now be paid either. Withholding tax and income tax were and will continue to be paid.

This happened because, from 2011 to 2013, people in government, the Department and the Central Bank decided we needed to attract foreign capital into the property market in Ireland. The Government created completely tax-free vehicles to do this and, lo and behold, money poured into the country. We now have a property bubble, meaning that too much money has poured into the country. High-quality office space in Dublin is selling for 6.4 times what it costs to build when, at the height of the bubble in 2007, it sold for approximately six times more. A property ownership business with profits from running hotels, commercial office space and apartments with rent rolls was treated in the same way as other companies in that it paid corporation tax and capital gains tax, while withholding tax was applied, with income tax being paid on dividends. The Government made it tax free and money poured into the country, creating a property bubble that is very dangerous. The Government has rolled it back somewhat and suggested it was never intended to be tax free. It is, however, tax free; Irish residents are pretending to live abroad and paying no taxes, while foreign investors who are genuinely living abroad are also paying no taxes. Accordingly, it has been decided that we need to apply some tax. If we compare the IREF world - the measure will be voted through today - with the world in 2010, we have essentially lifted the entire property sector out of the capital gains tax net for wealthy investors - not mom and pop who want to buy a one-bedroom apartment as part of their pension fund but who will still be hit with capital gains tax. The sector is a massive asset base in the country.

The legislation states everybody is exempt from capital gains tax and if a firm is a pension fund, a life assurance fund, a credit union, a charity or one of the investment undertakings, it is exempt from withholding tax. The majority of commercial property investments in this country are made by pension and life assurance funds which will not pay capital gain tax or withholding tax. The amendment states a specified person - the person who is taxed - will not include an "investment undertaking". This covers REITs, ICAVs and all of the companies mentioned. Measuring the impact of the amendment against the position today, one can say that at least it applies a 20% withholding tax in areas where it is currently not being applied, but measuring it against the position five years ago, it will leave a vast swathe of Irish investment properties outside the tax net.

Let us take for example an hotel that is bought for €10 million, provides €10 million in trading profits and is sold for €10 million profit. There is €10 million in capital gains profits and €10 million in trading profits. Am I right in thinking that if a pension fund buys that hotel, no tax would be applied whatsoever, including withholding tax?