Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

I understood. My comments are to the Minister of State. I am not responding to Deputy Burton's comment at all. I am responding to the Minister of State, to the amendment and to what Deputy Boyd Barrett said. There is a danger that we take the baseline as today and say that the IREF section brings in some welcome anti-avoidance measures and some new withholding tax provisions and that, therefore, it should be welcomed. If one ran a hotel five years ago, one paid corporation tax and capital gains tax first like every other company. Then profits were dispersed to shareholders and 20% dividend withholding tax is applied. The shareholders then paid income tax and capital gains tax in the country in which they were domiciled in respect of any gains from their share holdings. That is how a hotel, office block, factory and nursing home worked in this country five years ago. That is how business in this country worked. In 2012, the qualified investment fund legislation was radically changed and ICAVs were introduced. Suddenly, if one ran a property business in this country, one did not pay corporation tax or capital gains tax, there were ten ways around paying withholding tax, one pretended one lived in Portugal for income tax purposes and Ireland essentially became a tax haven for property investment. No tax was being paid anywhere.

What this amendment does is copperfasten the fact that property businesses will no longer be property businesses, they will be funds. In such circumstances, no corporation tax or capital gains tax will be paid and, in the vast majority of situations for professional investors, no withholding tax will be paid because the companies that invest in property in this country are exempt from withholding tax. If one considers the IREF section in conjunction with what has happened in the past four years - which is what one must do - it means that property businesses in this country will essentially be tax free from now on. The shareholder abroad may pay income tax in his or her country and may pay capital gains tax on his or her shares but there will be no taxes collected in Ireland. We are moving what is probably the largest asset base in this country out of the tax net except in a few limited cases, If one is a domestic investor, there are new anti-avoidance rules which say that one will pay withholding tax. However, one will not pay corporation tax or capital gains tax.

An error is being made here, which is that making businesses pay corporation and capital gains tax and then making them pay withholding tax is double taxation. This is not double taxation. That is how every business in the country is taxed. If a person owns a hotel, an apartment block, a number of apartments, a nursing home or a primary care centre, it is possible to say that he or she no longer owns a hotel company, that he or she is involved in a fund and that funds do not pay corporation tax or capital gains tax. If we take the basic case as of today, yes, the IREF section makes it not as bad but it copperfastens the fact that taxes will not be paid on property.

At the heart of this is a misunderstanding of what double taxation means. When it comes to funds, double taxation means that if a fund in the US owns shares in CRH in Ireland, CRH pays corporation tax and capital gains tax, the share disbursement is then made and withholding taxes are applied. Were the shareholders in the US to be hit for corporation tax and capital gains tax on what was going on inside the company, that would be double taxation because the trading income would be taxed twice. That is not what this does. This says that it is double taxation if corporation tax and capital gains tax are applied to a company - to a building such as a hotel - and withholding tax is then applied. I have the Minister's response to the question I asked on whether IREFs pay corporation tax on trading profits. He said that, as is standard practice for funds, IREFs are exempt from tax at fund level. He said that when payments are made from the fund to the shareholders, they are then subject to withholding tax. He said that this exemption at fund level removes the double layer of tax. There is no double layer of tax. Businesses pay corporation tax and capital gains tax and then pay withholding tax. That is how it works.

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