Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 105:

In page 100, between lines 34 and 35, to insert the following:

“Report on applying full rate of stamp duty on non-residential property to all corporate structures including REIT and IREF in certain circumstances

60.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on introducing anti-avoidance measures by applying the full rate of stamp duty on non-residential property on all corporate structures including REIT and IREF, which derive over 50 per cent of their value from commercial property for investment and/or letting purposes, upon the sale of their shares.”.

This amendment relates to IREFs and REITs and seeks a report on introducing anti-avoidance measures by applying the full rate of stamp duty to non-residential property on all corporate structures including REIT and IREF which derive over 50% of their value from commercial property for investment or letting purposes upon the sale of their shares. The Minister will be aware that as a result of this Finance Bill commercial property is now subject to stamp duty of 7.5%. When it increased to 6% in a previous Finance Bill, I had engaged with the Minister and his officials on an anti-avoidance measure that would counteract tax planning in the context of the avoidance of that 6% commercial property stamp duty by means of wrapping around a commercial property in a corporate structure. The purpose of such a wrapping around would result in an ability to avail of the 1% stamp duty that applies to the sale of shares. That anti-avoidance tax measure, which was detailed and complex, was introduced. Now we see that Green REIT, for example, is selling at a sale price of €1.34 billion. If we look at the old rate that exists at this point- and the sale has not gone through yet as far as we know - and if the stamp duty is levied at the 6% rate, it would mean Green REIT would have to pay just above €100 million in stamp duty. It would be able to benefit from a 1% stamp duty because it is selling the shares of the company and therefore would pay only on the reported sale price of €13.4 million. This would give the company a benefit of just over €87 million.

The Minister will argue that the question on that technical part of the anti-avoidance measure relates to whether property was developed. This amendments seeks that all structures, whether they are REIT or IREF company structures, that derive 50% of their value from commercial property through investment or letting purposes should, upon the sale of their shares, have the commercial stamp study applied to them. We are talking about property, we are not talking about businesses. We had a debate on this matter some years ago. Taxation of property rights is sacrosanct. The commercial stamp duty should apply and should do so at the full rate.

The issue here is that in the case of Green REIT the transaction has not yet gone through and it will be too late unless it is altered in this Finance Bill, but it could be for any other structure either. The anti-avoidance measure does not apply to it - as I understand from the Revenue interpretation of section 31C of the Stamp Duties Consolidation Act, which we introduced during the debate on budget 2018 - because of the two main conditions set out in that section, one of which is that there has to be a change of ownership or control in terms of money. Obviously, this is happening with the transaction to which I refer. The other condition set out in that section is that there has to be development of immovable property, which would require refurbishment, construction and so on. It is being deemed that the property acquired by this REIT was part of the core business as opposed to being acquired for the sole purpose of receiving a benefit upon its sale. This is okay. If that is the interpretation then that is the interpretation. I am not disputing the point. However, billions of euro in assets are currently able to be acquired by means of these structures. We spoke earlier about how much is involved when it comes to these structures. The assets to which I refer can then be sold through a transfer of shares and the owners of the REITs do not pay 7.5% commercial stamp duty because they are able to say that the assets were acquired not for the sole purpose of their disposal, and benefit in the value of that, and that the sole aim of acquiring the assets was not to make a profit or a gain from the disposal of the assets but to use the property as their core business. That is how matters stand at present. I am of the view that the current system should not exist. Where any of these structures have assets to the extent that they derive 50% of their value from commercial property, then the new 7.5% commercial stamp duty rate should apply.

I would love this measure to be in place at this point. If the Minister introduced it by means of this Bill, the taxpayer would benefit to the tune of €80 million due to a transaction that is likely to take place before the end of the year. That said, this is one company with €1.3 billion worth of assets. As noted yesterday, there are many other such companies. We are talking about fund structures that own €27 billion in assets. They could all do this type of transaction. We are sitting here talking about increasing commercial stamp duty, which I support. Concerns have been expressed by other Deputies on the impact it could have. Such an increase does have an impact. A person acquiring a shop, for example, will be obliged to pay the 7.5%. These structured funds, however, are able to avail of the 1% rate through the sale of shares. Yes, others can do the same, and yes one can acquire a hotel and buy the shares of the hotel company at 1%, but I believe the structured funds scenario is very different. It is not a company that owns a hotel and sells the shares on. These are companies that are set up with the sole purpose of acquiring commercial property or residential property, and have sufficient and significant amounts of that property within their holdings.

As stated, Sinn Féin introduced 31C of the Stamp Duties Consolidation Act in the aftermath of budget 2018 and I had identified a concern over that. It was responded to, which I welcomed, but the concern I now raise has been triggered by the sale of Green REIT to Henderson Park. This will impact significantly on the tax take of the State as a result of how our laws are drafted. I believe it is time we moved on that. I would like the Minister to move on it prior to the enactment of this Finance Bill, and at the very least to do what I ask with the amendment, which is to examine the issue in detail.

I looked back at amendments I placed last year on examining deductions used by REITs in computing their net profits and, in fairness, this has been done. This will lead to a significant additional tax and is a result of the changes we are doing here. Other amendments we have put forward in previous years have also seen action and in some ways are in this Finance Bill. I would encourage the Minister to genuinely look at this proposed amendment. It may not be as simple as I have portrayed it because there are other businesses such as rental property, shopping centres and so on that are able to avail of the 1% stamp duty on the sale of shares. I make the point, however, that the IREF and REIT structures are different to that. A company might hold multiple hotels or shopping centres, and this is likely, but the structures I refer to are set up for the purpose of acquiring commercial property and in some cases residential property.