Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 122:

In page 37, after line 35, to insert the following:

“Report on applying CGT to all sales of property by REITs 17.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on applying the full rate of Capital Gains Tax of 33 per cent to all disposals of property of the rental business of a REIT or group of REIT.”.

These amendments seek a report, which is the mechanism we use to raise these matters in the Bill without them being ruled out of order. The report relates to applying the full rate of capital gains tax of 33% on all disposals of property of the rental business of a real estate investment trust, REIT, or group of REITs.

The second amendment seeks the application of the full rate of capital gains tax of 33% on all sales of property by Irish real estate funds, IREFs, as opposed to current rules where tax on capital profits is paid only through the dividend withholding tax when the IREF makes a distribution.

We are back to discussing property. We had a lengthy discussion on the help-to-buy scheme and the impacts it will have on prices and related matters. There is an issue with the fact that we have some significant players in the property market.

I will introduce amendments at a later stage to deal further with that. The reality is that REITs are a significant player not only in commercial property but also in residential property. The tax structure of the REITs gives them a competitive advantage, allowing them to pay higher prices for apartments and residential dwellings and therefore pushing up prices in the entire property market. To be operational a REIT needs to derive at least 75% of its profits from rental properties, hold at least three properties and carry out the business of letting properties. No one property may count for more than 40% of the total value of property in a REIT and it must distribute at least 85% of rental profits to shareholders. Significantly, REITs are exempt from corporation tax on qualifying income and gains from rental property. A REIT's tax is paid by its shareholders in terms of the distribution but no capital gains tax, CGT, is paid by a REIT in relation to disposal of its assets, unlike a normal company or indeed an individual who would pay capital gains tax with the disposal of a company. It is these unique tax structures that allow REITs to have a competitive advantage. Some may argue that there was a point where this type of structure was required, a time of high house prices, bonanza rents and all the rest. We have plenty of examples of the types of rents some REITs are charging. We should not be facilitating these types of structures in our tax code in this manner. There was a significant change to the Finance Act. I have been raising this for years and last year we provided in the Finance Act 2019 that if a REIT leaves the regime within 15 years of entering, any capital gains tax made on assets will be subject to CGT. Members will be familiar with the issue of a REIT planning to sell up basically completely and then being able to avail of this tax structure. The question is about providing a level playing field and not facilitating these types of structures in which no corporation tax on rental income and no capital gains tax is applied. It is simply not acceptable in my view.

My amendment on the IREFs is similar, as I stated. The IREF regime was introduced in 2016. I mentioned the issue of retrospectivity earlier in the context of the taxation of the pandemic unemployment payment. One of the things that probably gave rise to this was the abuse of Mr. Denis O'Brien in relation to the tax code and how he was able to gain millions of euro of benefit as a result of using particular structures for the disposal of Irish assets. Irish property is sacrosanct and should always be taxed in Ireland but that did not exist because our tax law allowed for very clever accountants to find ways around that. That happened on more than one occasion. Consequently, the IREF structure was introduced, where for a fund that derives 25% of its market value from IREF assets, non-resident investors are subject to a 20% dividend withholding tax. That needs to be looked at again. I argued for that measure and it was introduced, as I said, in 2016. The regime was introduced to ensure non-resident investors were paying at least some tax on profits that derive from Irish real estate.

In this amendment we are calling for capital gains tax, from which IREFs are exempt, to apply in relation to this also. We can go into greater detail on the dividend withholding tax. There are ways of reducing that liability and we will deal with that at a later stage. Again, however, this is another competitive advantage provided to these types of funds that is not available to other people or indeed other Irish structures where the disposal of property is concerned.

If one looks at the REIT market here, €3.7 billion of Irish property is held by it. While REITs are, in the main, commercial entities, some 28% of their assets, or nearly €1 billion, is in residential property. It is crucial that the exemptions from capital gains tax for IREFs and REITs are no longer facilitated in our finance code.