Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

I thank the Minister of State. The next loophole regards the interest rate. The legislation proposes that rather than allowing these variable interest loans which suck out all of the profit, loans now have to be made to the vulture funds at a reasonable commercial return. What the accountants are advising their clients is there is no cause for concern as they will be able to get them rock solid reports which show that, for example, 20% is reasonable commercial rate. What tends to happen is the vulture funds borrow approximately 50% to 60% from a commercial bank, we have seen this in their own accounts, and they tend to pay approximately 3.5% interest on this. This is the senior debtor. The bit between the 60% and the 100% which is left is what they lend to themselves at these so-called mezzanine rates. To date, based on their own accounts, an interest rate of approximately 18% will wipe out all of the profits.

The vulture funds will go to one of the big accounting firms, who will give them big book and tell them this is how it was done in the UK and here, that Brexit is very scary, and that they do not know what will happen here because there is a lot of volatility in the market, and therefore it is reasonable the company in Luxembourg, the Cayman Islands or wherever, because it is not a senior debtor like the commercial banks, would be paid an 18% rate. I have two fears. These are this argument will succeed, in which case it is business as usual for the vulture funds, or that Revenue will negotiate a halfway house, in which case a vulture fund will come in with a report stating a mezzanine rate of 25% is absolutely reasonable, Revenue will start from a position that, for example, 5% is pretty reasonable, and they will negotiate and reach 12%, 13% or 14%.

If they do that they will still succeed through this loophole in continuing two-thirds of the tax avoidance. We will not see the 2017 accounts until 2018 or 2019. How do we ensure that when the committee meets in 2018 or 2019 it will not turn out they managed to negotiate a mezzanine rate of 12% or 13% and through that still managed to get two-thirds of the tax avoidance in place?