Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The Finance Act 2016 brought into force amendments to address the use of certain structures by companies which fall within section 110 of the Taxes Consolidation Act 1997 and structures used by certain funds involved in property transactions.

Throughout the course of the Finance Bill process, there was extensive debate on both the amendment to section 110 and also on the introduction of a new taxation regime for investment undertakings holding Irish property. The amendments made deal with concerns and issues which had been raised in the Dáil and the media throughout 2016 regarding the possible use of aggressive tax practices by certain structures to avoid paying tax on Irish property transactions. Both amendments are targeted. Section 110 has been tightened to prevent any misuse of the legislation. The measure has the effect that, for the purposes of section 110, the use of profit participating loans will be restricted where they are used by qualifying companies relating to Irish property transactions. The amendment will ensure tax will be payable by section 110 companies on their profits from Irish property transactions from 6 September 2016 onwards. The section 110 companies will pay 25% tax on all of their realised accounting profits and gains from Irish property related transactions.

The new Irish real estate fund legislation addresses the issue of non-resident investors who have been investing in Irish property through fund structures and thus avoiding a charge to Irish tax on profits arising from Irish real estate. In regard to the two measures, €50 million was included in budget 2017.  This amount is based on intensive analysis undertaken by Revenue.  As stated during the extensive Committee Stage debate on this topic, the €50 million is both conservative and prudent. As also discussed at length, this new legislation will trigger behavioural changes that cannot be predicted.  Furthermore, to estimate the yield from these amendments into the future requires predicting changes in property prices.  This, coupled with the behavioural changes, means it would be premature for the Department or the Revenue Commissioners to estimate any potential yield beyond 2017.

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