Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

I move amendment No. 39:

In page 43, between lines 3 and 4, to insert the following:

"(iv) for which there may be no shared ownership, or control, in the State or internationally, between the qualifying company and the recipient of any interest or other distribution payable.".

This amendment is linked to the charity issue. As the Minister stated, the rationale for charitable trust ownership is to obtain protection from bankruptcy. While I cannot remember all of the details, it did not feel right when I looked into this issue. I agree with the Minister that this practice is used internationally. However, the vulture funds in Ireland have set up their ownership in charitable trusts for two reasons, namely, to shield themselves from bankruptcy because Irish charities cannot be bankrupted and to shield themselves from the Inland Revenue Service, IRS, in the United States. This brings us to the nub of the amendment. It is my understanding that the IRS could tell the vulture funds that, on the basis that they are US companies operating but not paying any tax in Ireland and taking profits out of this country, they must pay corporation tax of 35% in the United States. For this reason, they choose to check a box that indicates that what is happening in Ireland has nothing to do with them. They can say that the loan comes from the Cayman Islands or perhaps a Luxembourg company and that ownership is held by a charity in Ireland, which makes it a fully Irish-owned operation. As the entity is being lent money from some other fund somewhere in the world, the US vulture fund has nothing to do with it and does not really own it. One of the reasons for keeping it in charitable ownership is that this status protects the entity from US tax laws. While I agree with Deputy Pearse Doherty that the purpose of charitable ownership is not to avoid Irish tax, I am told that it is to avoid US tax and is part of a tax avoidance mechanism.

As it happens, this issue arose on the national broadcaster earlier when there was a discussion on the Matheson Foundation. The latter is wholly owned by Matheson, one of the law companies of choice for many of the vulture funds and one which has helped these funds set up the structures I have described. Matheson set up a charitable trust that owns many of the vulture funds. What the Minister described was a legal and financial practice that is common around the world, whereby funds are owned by trusts that are not linked in any way to charity. However, in this case, Matheson set up a real children's charity. The last time I checked, the website of the charity in question featured a photograph of the Minister for Social Protection, Deputy Varadkar, giving awards to high-performing children at Dublin City University. Also in the photograph is the chief executive of the children's charity, who is also one of the partners in Matheson.

I take the MInister's point that, under Irish law, we do not have trusts other than charitable trusts that can be used for the purposes we are discussing. However, one would not expect charitable trusts established for these purposes to be operated as children's charities. If, under law, the trust must be a charitable trust, one would expect the vulture funds to park their trust, as it were, in a place where everyone would recognise it. However, in this case, that is not what Matheson has done. Instead, it has set up a children's charity. I have not looked into whether there are other such cases.Several months ago, I referred in the Chamber to the children's charity established by Matheson. The front page of the charity's website lists a series of groups that it funds, including the Children's University Hospital, Temple Street. I referred to this issue some months ago on Leaders' Questions. In an interview on radio today, a spokesperson for Children's University Hospital, Temple Street, stated that the hospital had never heard of the Matheson Foundation, does not receive money from it and has no idea why the foundation listed the hospital on its website as one of its charitable causes.

It would be bad enough if vulture funds were using legal boxes to create entities that happened to be called charitable trusts for the purposes of tax avoidance and to protect themselves from bankruptcy. It is worse than that because, in this case at least, a real children's charity has been created and ownership of the vulture funds has been vested in it. This charity is owned by the same legal firm that creates some of the tax avoidance. It is worse again that the children's charity that owns God only knows how many vulture funds in this country - God only knows how many funds are evicting children from their homes - is stating that Children's University Hospital, Temple Street, is one of its charitable causes, yet a spokesperson for the hospital stated on radio today that it is not one of the charity's causes and had never heard of these guys. That takes the biscuit and must be looked at.

It is not just a technical issue of other countries having trusts while in Ireland we only have charitable trusts, meaning blind trusts are used. This has gone way beyond that. I have met with the charities regulator and, like Deputy Pearse Doherty, brought it to his attention. The regulator is looking at it. The level of what is going on, however, is so distasteful that a look from the Department of Finance and others, as well as the children's charity, would be welcome.

The amendment specifically aims to break any potential ownership between the vulture fund in Ireland and the loan it is getting. As we know, internal loans are used to offshore the profits. My concern is that, if we do not explicitly state that there can be no connection between the loans one is getting at this reasonable commercial return and the vulture fund, they will find ways of creating what looked like independent loans but are in fact internal loans as they are all owned by the same parent company. Then they walk in with the big portfolio that says 12%, 15% or 18% is perfectly reasonable.

The reason I tabled this amendment is because I believe it is an extra safeguard. As I said earlier this evening, they are not allowed used the profit participation notes anymore. However, it is for this reasonable commercial rate to be argued very hard. For example, they say 25% while Revenue says 10% and they end up with 12%. At least half of the profits will still be offshored. This is a safeguard that says there can be no link. Therefore, it makes it much harder for a vulture fund to say we have this fund sitting in Portugal, Tokyo or the Cayman Islands. If it genuinely has nothing to do with it and it would be considered tax evasion if any link could be found, then it would be a further sensible safeguard to stop gaming of the reasonable commercial return.

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