Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 146:

In page 62, between lines 24 and 25, 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

47.The Minister shall, within six 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 concerns stamp duty on REITs and IREFs. I will begin by discussing amendment No. 146 in particular. As the Minister knows, I have been quite vocal on the tax treatment of REITs and IREFs. Amendment No. 146 calls for a report on the application of the full rate of stamp duty on non-residential property to all corporate structures, including REITs and IREFs, in certain circumstances. I welcome the number of measures that have been introduced in previous years to address what were glaring gaps in the taxation of these structures. Some of this we discussed yesterday during the passage of various sections of the Bill. I welcomed in particular, for example, the move to close the revaluation loophole on REIT cessation. Section 705P requires that the relevant REIT has to be in operation for over 15 years before it enjoys preferential treatment, and that is to be welcomed. I was on the record as far back as 2017 calling for the dividend withholding tax on REIT and IREF structures to be increased to the 25% rate, and I welcomed the adoption of that proposal in last year's Finance Bill. Let us be clear, however, that this needs to go much further. I have called for dividend withholding tax to be increased further to 33%.

There is no doubt but that there is a need for a complete overhaul of the tax treatment of non-resident investors in our property market, both residential and non-residential. My views on this have been made well known to the Minister and have been articulated time and time again on Committee Stage of the Finance Bill and through the many other opportunities I have in the Dáil. We need to overhaul the treatment of both capital gains tax and dividend withholding tax. The section before us deals exclusively with stamp duty, as does this amendment. In last year's Finance Bill a stamp duty loophole for REITs was closed, which I welcomed; however, it did not go far enough. On a number of occasions in the Dáil last year I raised the example of Green REIT and its sale to Henderson Park. The change made ensured that a 1% stamp duty was applied to the €1.34 billion sale of Green REIT to Henderson Park. That brought in about €13.4 million to the Exchequer, and while something is better than nothing, it is simply not good enough that it was able to pay as little as that in stamp duty. Non-residential stamp duty is not 1% but 7.5%, and there is no justification for a REIT or an IREF enjoying lower levels of stamp duty that are denied to other businesses operating within the State. Last year I called for the full rate to be applied to the REIT structures, a change which in the case of the Green REIT sale would have brought in €100 million and a little more in change to the taxpayer, money that could be well spent in these times.

The amendment before us uses the type of procedure we have to use. It calls for a report to examine legislative change that would ensure that the full rate of stamp duty is applied to these structures. I am aware that officials within the Department of Finance discussed such changes to the Stamp Duties Consolidation Act in the summer of this year. A stamp duty anti-avoidance measure was introduced in budget 2018 under section 31C of the Stamp Duties Consolidation Act 1999. However, this measure did not include REITs. Officials sought approval to amend the section to encompass REITs in the Finance Act before us but approval was not granted. The sale of shares attracts stamp duty at a rate of 1%. A stamp duty anti-avoidance measure was introduced in section 31C of the Act. However, following the increase of the stamp duty rate on the acquisition of non-residential land and property from 2% to 6% in budget 2018, the measure ensures that the higher rate, now 7.5%, also applies where non-residential property held by an entity such as a company, a partnership or an IREF is indirectly sold by way of sale of the shares in the company, effectively selling the non-residential property itself. In the absence of section 31C, it is probable that only a 1% stamp duty rate that applies to share purchases would apply to such sales. REITs, as we know, are collective investment vehicles designed to hold rental investment properties in a tax-neutral manner. They are not currently covered by section 31C of the Stamp Duties Consolidation Act 1999, and their inclusion was overlooked at the time. Therefore, the acquisition of shares in some REITs which are comprised solely or principally of investment in various types of non-residential property may only be subject to a 1% stamp duty as opposed to a 7.5% rate for all other types of property of that nature by other structures.

Owing to the infrequent occurrence and unpredictable size of the transactions which would be encompassed by the extension of section 31C, it is not possible, we are told, to provide an estimate of the revenue that might be derived from it. However, we know from the Green REIT sale to Henderson Park that there are clear advantages to the taxpayer in applying the full rate of stamp duty to REITs and IREFs. In addition, there are positive effects these measures would have on our property market more generally in terms of turning it towards affordability rather than into an environment which is geared towards non-residential investors, with the impact on prices that results from that. I ask the Minister to clarify why the changes were not made despite approval being sought by officials. We discussed how he provided approval in regard to candles and so on. In terms of REITs being able to avail of stamp duty at 1% when non-residential stamp duty applies at 7.5%, there is a loophole that needs to be closed and was sought to be closed by officials but did not get ministerial approval.