Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I support amendment No. 79, which addresses many of the issues Deputy Boyd Barrett raised regarding the structure. While acknowledging that the Bill is an improvement on past legislation, the problem is that the previous provisions were rotten to the core and major issues arise regarding how the tax code incentivises property speculation and whether this is appropriate. A report is definitely required. Such a report would capture these issues.

During this debate and on Committee Stage, we have teased out the matter of the dividend withholding tax and to whom it would or would not apply. I have provided examples of what would happen. I seek clarification on this issue because I do not agree with Deputy Donnelly's characterisation that, basically, this will all be tax free. It is my understanding that if an existing ICAV is rearranged whereby it will in future be owned by an ICAV in Luxembourg, the anti-avoidance measures would automatically kick in immediately. As a result, the existing ICAVs cannot reorganise in such a way as to avoid tax. If an ICAV is currently owned by a wide structure in Luxembourg or in any other country in the European Union, this does not apply. The rights and wrongs in this regard are seriously questionable. However, from my point of view, I do not agree that it will be a free for all or that no tax will be paid as a result of this provision.

In the context of US-owned firms - for example, Kennedy-Wilson - the dividend withholding tax would apply because they are located outside the European Economic Area, EEA. Will the Minister confirm my view on this matter? As Deputy Donnelly stated, we are learning as we go along as a result of the fact that some of the provisions are highly technical. Will the Minister confirm that the anti-avoidance measures - particularly the general anti-avoidance measures which are written into the tax code and which are quite strong - will kick in? Will he conform that if, for example, a new or existing entity were to establish an ICAV in Luxembourg for the purpose of holding an ICAV in Ireland, the general anti-avoidance measure would kick in because the purpose of the structure in question would be to avoid paying the tax that would be due in this country? Even if the latter proves to be the case, there are many smart people who will tease through all of this in order to try to find ways around it.

This is why it is crucial that we have reports on everything involved, including why the hell we have facilitated - in such a generous way - the purchase of property in the State. It is wrong to say it but successive Governments have had a love affair with property. I do not want to go off the subject, but today we received figures on the dramatic increase in homelessness. We have a huge issue in terms of housing, and a commercial property bubble because it was incentivised through this fund structure. There is nothing new in this. It was incentivised ten years ago through a different type of structure by a different Government making different decisions. We need to break from the love affair we have with property, manage it normally and stop incentivising the purchase of property.

This is what is happening in terms of the fund structures, despite the advances in the Finance Bill and REITs, on which I want to focus regarding amendment No. 79. We have a very generous tax efficient structure which now holds billions of Irish assets. IRES REIT has emerged as the country's largest non-Government landlord. It has a portfolio of 2,377 apartments throughout Dublin, with annual rental income of more than €40 million. This has actually increased, because just last week it bought in excess of another 100 apartments. We are providing a very tax efficient structure for it. Despite the fact the previous Government introduced so-called rent restrictions, IRES REIT has increased its rents by up to 12% in Dublin in its properties this year. It states that this is due to tenants leaving properties. When a tenant leaves a property, the rent can be increased and a new lease begins. A substantial proportion of the portfolio relating to this entity will be up for renewal in 2017. IRES REIT has stated it will provide an opportunity next year for more rental increases. We are in the middle of a rental crisis, people are being put to the pin of their collar and others are being made homeless. However, one of these REITs, the biggest non-Government landlord in the State, is telling us boldly in its published accounts there are huge opportunities to increase rents again in Dublin, that it did so by 12% this year and that it will do it again next year because a substantial portion of the portfolio is up for renewal.

It is obvious to me, but the Government needs to ask why are we giving tax breaks to a structure that is hiking up rents and the business plan of which for next year involves further rent increases. The tenants in these apartments are those who are paying the price because what is involved here is tax that is foregone to the State. It is similar to Deputy Donnelly's previous argument in terms of how to buy a hotel. Prior to the introduction of REITs in the 2013 Finance Act, a limited company would have had to purchase the 2,377 apartments involved in this instance. If we had not introduced this measure in the Finance Act 2013, IRES REIT would be IRES Limited, and it would be obliged to pay 12.5% corporation tax on the profits from its €40 million in annual rent. It does not do this, however,

What report, if any, has been done on a cost-benefit analysis of REITs since they were introduced in the Finance Act 2013? Will the Minister provide details of the tax paid to the Exchequer so far from dividend withholding tax from REITs? The information should be available. An Irish REIT is required, subject to having sufficient distributable reserves, to distribute to shareholders by way of a dividend, on or before the filing date for the tax return in the accounting period, of at least 85% of the property income. One of the proposals I made in 2013 related to the property income of the property rental business arising in each accounting period. We should have this information.

The third point I wish to raise relates to the dividend withholding tax applied to distributions from a REIT and a non-residential investor's ability to reduce the rate of dividend withholding tax under the relevant terms of a tax treaty between Ireland and the investor jurisdiction. There is significant scope for entities to reduce the dividend withholding tax they pay. We know, for example, that the only tax treaty agreement that specifically mentions REITs is that with the US. Dividend withholding tax can be reduced to 15% where the investors hold 10% of the REIT shares. There are questions to be raised and answered on this.

Amendment No. 81 states the Minister shall, within nine months of the passing of this Act, prepare and lay before the Dáil a report on the ability of non-resident investors, from countries with which Ireland does not have a double tax treaty, who hold Irish business assets, including shares in Irish businesses, in qualifying investor alternative investment funds, QIAIFs, or ICAVs to avoid dividend withholding tax on any dividends they receive from their Irish business holdings. I dealt with this on Committee Stage and the officials gave me their view on it. They informed me last week that all Irish sourced dividends paid to non-resident investors, regardless of whether they are from an Irish limited company or an ICAV, are paid tax-free without the application of dividend withholding tax. I am not sure about this, but the Minister's advisers and the Department are better informed. They state that this is the case provided the non-resident investor in receipt of the Irish dividend resides in a country with which Ireland has a tax treaty.

First, can the Minister confirm whether that is accurate? Second, can a non-resident residing in a country with which Ireland does not have a tax treaty - for example, Monaco - receive Irish dividends tax-free with no Irish dividend withholding tax paid when they are paid through an ICAV or qualified investment fund? I ask the question because the focus so far has all been on property assets. If I were tax-resident in Monaco, owned an Irish newspaper or Irish company, put the shares of that newspaper or company into an ICAV and were therefore resident in a non-tax treaty agreement country, would I be exempt from dividend withholding tax? My understanding is that I would. The purpose of the amendment is to examine how these vehicles can be used not only for property assets, but also potentially to hold the shares of companies and, because of tax residency, be exempt from dividend withholding tax.

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