Pearse Doherty (Donegal, Sinn Fein)
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That is the way these things go. As I said yesterday, I am frustrated that we are still dealing with this issue and that these fund structures which are having an impact on both the commercial and residential property market do not pay an appropriate level of tax. I acknowledge that the Minister is not going to accept the amendment, but I wish to give some information on these structures.

There are effectively two types of IREF operating in Ireland, namely, those that invest directly in tangible property assets - let us call them category A - and those that invest in financial securities, the value of which is derived from Irish property. Let us call them category B. Based on the latest Central Bank figures, the gross value of assets held by IREFs is €27 billion. It is important to give that figure because this is not Mickey Mouse stuff. A serious number of assets are held by these structures. Some €17.7 billion of that €27 billion relates to funds in category A. That leaves between €9 billion and €10 billion related to IREFs which invest in financial securities, debt and equity derived from Irish real estate. The figure of €27 billion represents a staggering increase from just €6.9 billion in the first quarter of 2014. One can see the level and trajectory of these funds.

Alongside the total property assets held by such funds, we have also been given a breakdown of where the investors securing returns form these assets are based. This is significant because where they are located may affect their taxation and the type of tax applied to them. Only 41% of the €9.3 billion in equity subscriptions in IREFs is held by Irish investors. The vast majority are international investors, which reveals an investment sector dominated by international investors. Moreover, IREFs are dominated by large institutional investors, rather than the multiples of small investors envisaged by the Department of Finance, which was the original intention behind the scheme. The funds are dominated by large institutional investors. In 2016, 91 of the 132 IREFs had just one investor. Imagine that. That one investor likely denotes one collective investment vehicle, rather than an individual. The Department of Finance tax strategy papers published in advance of budget 2020 stated 89% of IREF investments were in commercial property and 11% in residential property, with 90% of the assets held in Dublin.

As we know, IREFs are only obliged to report their dividends and, by extension, their assets to the Revenue Commissioners if a taxable event occurs in any given year. In 2017, the most recent year for which data are available, the 51 IREFs that were obliged to make a report owing to a taxable event had combined assets of €7.8 billion, with related dividends of €649.4 million, from which only €9 million in tax was collected by way of the dividend withholding tax. I will explain it again. There is an obligation on IREFs to report a taxable event and report dividends and assets when a taxable event occurs. In 2017, 51 IREFs submitted reports. Their assets were worth €7.8 billion and their dividends, €649.4 million. The tax collected by way of the dividend withholding tax was €9 million. That gives a rate of 1.3%. That is what is happening. Under a system with €27 billion worth of assets, the majority of which are derived either from property or directly invested in tangible property assets, we had a return of 1.3% by way of the the dividend withholding tax from the 51 companies that had to make a report on a taxable event in 2017. We have a serious problem.

The Finance Bill increases the rate to 25%, which might increase the return a little, but we have an issue as these funds are not paying at the current rate of 20% owing to the reasons discussed last night. It is difficult to calculate the tax lost because of an extremely light-touch approach to institutional investors and their collective portfolios of Irish commercial property, but we are looking at a combined value of tens of billions of euro within these structures. The easiest way to ensure we will tax these funds appropriately is to make them do what every Tom, Dick and Harry has to do when selling commercial or residential property, that is, to pay capital gains tax at a rate of 33% on the sale of the property if there is a gain involved. There are limited exemptions related to primary residences and so on, something on which we have touched. That is what everyone else has to do, bar these structures, some of which are only able to purchase or invest in these properties because of the taxation system. If a company in County Donegal paid tax at an effective rate of 1.3%, it would be able to invest much more in property and make a higher bid for any property it might want to purchase. We have a serious problem.

Capital gains tax should be applied to gains on properties. The problem is the structure of IREFs in the first instance. They avail of the structure that exists in the Finance Act 2001, which allows for the gross roll-up regime, as the Minister noted, and there is no tax within the fund. The only instance the tax is applied to the profits accrued in the fund is when distributions take place. As I have pointed out in that regard, however, for dividends of €649.4 million, only €9 million was collected in tax, a rate of 1.3%. They are effectively tax-free. They do not pay income tax on their rent roll, capital gains tax or corporation tax on their profits in the fund. They avail of the Finance Act 2001, which is fine but it is not fair. What is happening needs to stop. It is a bad practice and we cannot allow it to drift on any longer. I gave the example of the volume of assets being accumulated by IREFs, which rose from €6.9 million in 2014 to €27 billion in the latest year for which we have figures, although it is likely to have increased further since the figures were reported.