Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Members may be aware that last year officials in my Department produced a report on REITs, IREFs and section 110 companies as they invest in the Irish property market. The report was presented to the tax strategy group and published in July 2019. This paper provided the basis for policy discussions and a number of amendments were then introduced as part of the Finance Act 2019.

In respect of IREFs, I introduced a number of additional anti-avoidance measures to ensure that an appropriate level of tax was collected from the regime. These measures include limitations on interest expenses, based on debt to property cost and on a profits-to-interest ratio. Tax is now payable at the fund level in circumstances where this ratio is breached. The amendments were introduced to prevent the use of excessive connected party interest charges to reduce profits, subject to the IREF withholding tax. I advise Deputy Doherty that officials in my Department and the Revenue Commissioners continue to monitor the taxation of IREFs. As I stated last year, should additional issues be identified, I will take further action as necessary.

On the basis of filings that were made by IREFs in July, which covered returns by them up to 31 December 2019, €65.04 million was paid through the IREF withholding tax which is equal to a tax rate of 18.47%. Many changes were made in respect of IREFs last year to deal with the issues that were brought to my attention and the debates we have had on these matters on recent Finance Bills.

On REITs, I introduced a number of amendments last year to ensure an appropriate level of tax was levied on the regime. Two of these focused on the treatment of the proceeds of property disposals. The first was an amendment in respect of the application of dividend withholding tax on capital disposals and was designed to prevent the proceeds of disposal being paid out without incurring a tax charge. Second, the deemed disposal provisions upon cessation of REIT status were restricted to REITs that had been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term stable investment in rental property.

In light of the report that I completed last year and the new measures introduced in the Finance Act 2019, I do not believe that now is the appropriate time to undertake a further report in respect of the taxation of profits and gains of IREFs and REITs. For those reasons, I cannot accept the Deputy's amendments.