Joan Burton (Dublin West, Labour)
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32. To ask the Minister for Finance the measures he has put in place in order that so-called vulture funds pay both corporation tax and capital gains tax at full rate; if he will provide an estimate of the additional revenue he expects for the Exchequer in each of the years 2017, 2018 and 2019 from the closure of loopholes that enabled these funds to avoid taxation; and if he will make a statement on the matter. [1806/17]

Joan Burton (Dublin West, Labour)
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The question asks what will be the effective tax yield on a yearly basis from the changes the Minister introduced in the Finance Act on the taxation of vulture funds and the closure of loopholes which have allowed many such funds to pay little or no tax. Will the Minister advise if any of these funds contributed any corporation or capital gains taxation to the Exchequer prior to the enactment of the Finance Act? Is it true that they have been effectively entirely free from taxation?

Michael Noonan (Limerick City, Fine Gael)
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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.

Joan Burton (Dublin West, Labour)
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It is disappointing that the Minister has not been prepared to identify the likely yield from the taxation of these companies. The practice of these companies is very often to drive up rents, which they have already done in the Irish market in a significant way and to focus on relatively short-term to medium-term investment timeframes of five to seven years. If that is the outturn, this means there is a very narrow window of opportunity for the Exchequer to ensure that taxation is paid by these companies. As I said, they have been to the fore in raising rents, as well as buying properties cheaply. Does the Minister propose to introduce further legislation to normalise the activities of these companies and to restrict their extreme profit-taking from the Exchequer?

Michael Noonan (Limerick City, Fine Gael)
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It would be incorrect to assume that we can tax these assets because we do not tax assets. I presume the Deputy is talking about tax on the income stream in respect of rent-mortgage repayments or capital gains tax. One or the other would be subject to tax. The first move by investment companies of this nature is to seek to change behaviour to either eliminate or reduce their tax liability. We know that there are changes in this behaviour already. As I said, those that continue in the business will be taxed at 25%.

Capital gains tax is a feature of the property price. Property prices are increasing. This means there would be additional capital gains to be paid as property prices continue to rise, such that to predict what tax might be payable by any individual fund by 2018 or 2019 is not possible. The Revenue Commissioners have estimated the amount to be paid in 2017 will be €50 million, which amount they say is conservative and prudent. I hope it will be exceeded. As I said, there are changes in behaviour already under way. Most of the bulk buying of Irish property commenced in 2014. The Deputy will be aware that under tax law these companies must file their returns by September 2015, such that they were operating for 21 months in some cases before the Revenue was given the data on which it could make assumptions. In late 2015, the Revenue began to suspect there was something untoward happening in regard to the application of section 110, which was legitimately introduced for the financial services industry. It then informed my Department of the position in early 2016. It was a difficult issue to address but we worked hard on it and as soon as we had a solution we published it ahead of the Finance Bill in September 2016.

Joan Burton (Dublin West, Labour)
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The Minister said that behavioural changes have already commenced. It would be helpful to the House if the Minister could identify those behavioural changes. For instance, are the companies experiencing some kind of conversion to corporate social responsibility in terms of their making a contribution to the Exchequer in respect of properties which they bought cheaply? While some of these properties are being refurbished and improved these companies have played a major role in rising rent costs in respect of which presumably they are making a killing. It is on that basis that I believe the figure provided by the Minister is very conservative.

I note that one of the companies, Kennedy Wilson, wrote to the Minister about five days prior to the budget announcement. It would be helpful to the House if the Minister would enlighten us as to the reason a number of specific points in Kennedy Wilson's correspondence to the Minister, which was a potentially influential letter five days prior to announcement of the budget, are redacted. I have difficulty understanding why that should be the case. This is a matter of enormous public interest in the context of the housing crisis and as such the House deserves to be given full information.

Michael Noonan (Limerick City, Fine Gael)
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The draft legislation was published well before the budget. The Deputy will recall that it was published in September and that it was accompanied by a statement inviting observations on the legislation. It was published as draft legislation subject to consultation. As such it was no cause of wonder that interested parties and their legal representatives or tax advisers contacted the Department of Finance. That is normal practice. I do not control the release of information under freedom of information requests. I read in the newspaper about the Kennedy Wilson letter. It would not have crossed my desk at the point of release because freedom of information is separate from the Minister. It is normal practice that information deemed to be commercially sensitive information that would injure third parties would be redacted. Having been a Minister for a number of years and been subject to freedom of information requests, Deputy Burton will be aware that such requests would not have come across her desk but would have been dealt with by the designated officers in her Department.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I am reluctant to interrupt Members but I must do so if they do not adhere to time limits as this results in other Members not having their questions answered. I will be flexible but if I am to give every Member a fair crack of the whip others will have to be brief.