Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

23. To ask the Minister for Finance if he will review the tax breaks for real estate investment trusts and vulture funds in view of the fact that they are in many cases sitting on properties and the desired affect of increasing supply is not being realised; and if he will make a statement on the matter. [31473/17]

Peadar Tóibín (Meath West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

53. To ask the Minister for Finance his plans to reform the favourable tax treatment provided to property investment funds operating here in view of the negative effect this treatment is having on the market in terms of them purchasing huge chunks of residential housing and commercial property, clogging the supply of residential housing and hoarding land banks. [31455/17]

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

Not for the first time, it was reported in the newspapers at the weekend in respect of REITS and vulture funds, which are co-investors with the Ireland Strategic Investment Fund, ISIF, which is the State investment fund, and which are involved in real estate and the SME sector, that two of them, Cardinal Capital and BlueBay, paid €250 in tax each in 2015. Does the Minister not think this is a scandalous indication of tax evasion by a very profitable sector?

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I propose to take Questions Nos. 23 and 53 together.

A real estate investment trust or REIT is a quoted company used as a collective investment vehicle to hold rental property. A REIT is exempt from corporation tax on qualifying income and gains from rental property subject to a high profit distribution requirement. A REIT provides the same after-tax returns to investors as direct investment in rental property by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.

In the Finance Act 2016, the former Minister for Finance, Deputy Noonan, introduced measures to address concerns about the use of certain vehicles by non-resident investors in the Irish property market. Section 22 of the Finance Act 2016, which amended section 110 of the Taxes Consolidation Act 1997, was introduced to address concerns about the use of the section 110 regime by non-resident investors for the distressed debt that they had purchased from financial institutions. In response to concerns that section 110 was being used to erode the State's taxing rights on Irish property, the Finance Act 2016 restricted the use of the section 110 regime to remove the ability of section 110 companies to use what are known as profit participating notes to extract Irish property or distressed debt profits out of the company in a way that ensured little or no Irish tax liability arises. The Finance Act 2016 also introduced a new regime for the taxation of Irish funds holding Irish real estate known as the Irish real estate fund or IREF. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-resident investors to invest in Irish property. IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors.

Additional information not given on the floor of the House.

I am of the view that the taxation regimes remain appropriate for these entities. As the REIT regime is designed to prevent a double layer of taxation and the amendments in the Finance Act 2016 were designed to protect the State's taxing rights over property, these are not favourable tax regimes nor is there an evidential link between these tax regimes and property supply issues.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

One of the central justifications for these extraordinary tax breaks for REITs and vulture funds - the section 110 structure allowing these companies to benefit from it and the REIT tax breaks introduced by various Finance Acts - was encouraging investment in property in Ireland and resuscitating the property sector, presumably to do something basic like provide housing for people. To this day, the Government cannot even tell us how much tax has been foregone via section 110 and will still be foregone in terms of capital gains and rental income under these schemes. Incredibly, ISIF is working with these people who have sucked vast amounts of profits out of the country. What has it delivered in terms of housing? It has delivered nothing. In all of the years in which these things have been in operation, according to the CSO, we have had a 0.4% increase in housing stock and, of course, a disastrous situation in social housing. Can the Minister tell us how many billions we have wasted in foregone tax revenue to get that failed result in terms of a thoroughly dysfunctional housing sector, which is dysfunctional precisely because the Government gave them tax breaks instead of using the State's resources to invest in social housing?

Declan Breathnach (Louth, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Deputy Pearse Doherty has a supplementary in the name of Deputy Tóibín. I also have two requests from Deputy Michael McGrath and Deputy Wallace.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I am taking this question on behalf of Deputy Tóibín. If an individual or company resident or non-resident makes a gain on the disposal of Irish property, it is standard practice for them to pay capital gains tax at 33%. If an individual resident or non-resident has Irish rental income, they pay Irish personal tax. Likewise, companies, both resident and non-resident, pay corporation tax at 25% on their rental income with dividend withholding tax applied for non-residents. The big question is why the Government throws out the rule book when it comes to these funds. What is happening in this State is ridiculous. This State is being bought up inch by inch and foot by foot by these multinational, large investment and multi-billion euro funds and they are doing so under the noses of the Irish authorities. Inserted into the tax code is a provision stating that they must pay a minimum amount of tax. There is a number of elements to this. We are dealing with REITs, Irish collective asset-management vehicles or ICAVs and qualifying investor alternative investment funds or QIAIFs- each with a different tax structure. Let us look at 2015. The accounts of the three REITs in this State all recorded a profit of €238 million. How much did they pay in tax? They paid €5.27 million. The Minister's internal documents, which I obtained through freedom of information, show that the capital gains tax exemption for the qualifying investor funds is clogging up the housing market. It is more profitable for these funds to leave their apartments empty and their lands undeveloped and to hold them for five years than actually to sell or develop them and get tenants into those properties. That is because of the Government's policy.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will not begin a practice here of commenting on the tax affairs of any individual company. That is a matter for the company. What I will comment on is the overall tax treatment of REITs and similar entities. What neither Deputy pointed out in their analysis of the issue is the fact that because of how they are structured, REITs are required to return 85% of their yield or profit to investors. Look at how investors are taxed. If an Irish investor resident here is an individual, they pay income tax on that and if the investor is a corporation, it pays a rate of 25% on it. An institutional portfolio investor pays a rate of tax on it of 12.5%. In respect of an investor outside our jurisdiction, there is a tax code relating to payment abroad, which means the investor will pay tax on that of between 15% and 20%. As both Deputies know, the reason these REITs were put together was to avoid being in a situation where any form of economic activity is taxed twice but as neither Deputy pointed out in their analyses, those taxation regimes apply to the income that comes from the REIT and there is a different taxation regime for an Irish investor compared to an investor abroad. In addition to a tax rate of between 15% and 20%, an investor abroad is required to declare their income in the jurisdiction in which they are resident and pay tax on that as well.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank the Acting Chairman for allowing me in. I know a working group is examining the taxation of rental income by various recipients. Could the Minister clarify whether this working group will report by the end of July, as envisaged, and whether it will feed into budgetary considerations for October? I acknowledge that the overarching issue is one of supply and that this is what underpins all of this.

3 o’clock

In respect of the various ways in which rental income is taxed - for an individual private landlord, it is up to 55% at the marginal rate, while for companies, it is 25%, plus a further 20% where there is a close company surcharge - while I can understand some of the logic behind incentivising professional institutional landlords, if the Minister is trying to encourage private individuals to purchase one-off houses in estates here and there, they simply will not do so. When will the report be completed and will it feed into budgetary considerations prior to October?

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

The Minister appears to tell us about the changes to section 110 and the fact that some of the investors will actually pay some tax, but he is ignoring the fact that the REITs, provided they share 85% of the dividends with their investors, pay no tax on their rental income, nor do they pay any capital gains tax if they stay for at least five years. In January 2014 I challenged the then Minister for Finance on the fact that these organisations and entities were going to cause serious problems in the rental market. He said they only held €400 million worth of assets and that we should worry about them when they got bigger. Now they hold billions of euro worth of assets and we do not yet seem to be worrying about them. The truth of the matter is that they have seriously unbalanced the rental market. They are about to launch a scheme of apartments on the south side and are looking for €1,900 a month or more for one-bedroom apartments. It has gone off the Richter scale and the Minister is not controlling them. He has ignored his responsibility in that regard.

Declan Breathnach (Louth, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Minister can answer those questions. I will then take the supplementary questions of Deputies Richard Boyd Barrett and Pearse Doherty.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

In his first priority question the Deputy made the point that I should not make any comment that might have consequences for the housing market in how it was structured for those who participated in it. I will abide by that principle in any comment I make on the taxation of rental income in the future, apart from confirming for the Deputy that there is a report on the way on all tax support in the rental market. I expect it to be available to me either before or during the summer. I am discussing the matter with the Minister, Deputy Eoghan Murphy. On what the Deputy said, I make the point that in the analysis offered on REITs to date on the floor of the House the indication is that there is no tax involved in any way. The funds were set up in such a way that they required 85% of the profit is returned to the investor. The investor pays tax. Furthermore, there is a dividend withholding tax, something I did not hear either Deputy Richard Boyd Barrett or Deputy Pearse Doherty acknowledge.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

We argued for it.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I outlined the way in which tax was paid by those who benefited from the funds, depending on where they were resident.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

It amazes that the Minister does not acknowledge the scale of the damage and distortion the movement of these funds into the property market has caused. I ask him to tell us, although I know that he will not, how much tax has been forgone as a result of section 110 and the REIT tax breaks. We can never get an answer to that question. They are still benefiting from them and, as we know, they just sat on properties and jacked up rents, worsening the housing crisis. I even logged onto PricewaterhouseCoopers' website today to see what it had to say about section 110. It is boasting, stating one should invest here because one would not have to pay any tax. "Tax neutral" is the wording used and what is being touted by these accountancy firms. They state people should get involved in the property market in Ireland because one would not have to pay any tax, there will be flexible and favourable domestic tax law reliefs and that Ireland allows for neutral treatment of corporation tax, provided certain conditions are met, blah, blah, blah. The Minister shows no interest in looking at this scandal, given what has been done to the property market.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister needs to open his eyes and look at what is happening. Let us look at what the Central Statistics Office, CSO, stated. It stated non-household buyers were outstripping new homeowners in purchases of new houses in Dublin. Who makes up the largest component of non-household buyers? The answer is REITs qualified investor funds. Some 62% of new homes in Dublin were bought by those involved in that component and 44% nationally. They are outbidding families that are trying to get onto the property ladder because of the tax structure. The Minister gave a nice answer, that 85% of income had to be distributed to shareholders, but what he did not tell the House was that 85% of the investment in REITs was foreign. Therefore, there is no capital gains tax to be gained on the uplift of property values. That is why, of the profit of €238 million recorded by the three REITs in their accounts, they paid just over €5 million in tax to the State. The other thing the Minister dodged was the fact that officials in the Department of Finance and Revenue stated there were genuine, valid concerns and that the policy the Minister introduced was clogging up the market because it was more profitable for qualified investment funds or Irish Real Estate Funds, IREFs, to hold on to properties, leave them empty, not sell them or hold on to land because they could avail of the five-year rule, under which there would be no capital gains tax if they held on to property for five years. As the Minister's own officials are telling him this, he needs to step up and change the law to deal with a number of issues. He needs to give commitments in that regard because this is having a detrimental effect on renters and those trying to get into the property market.

Declan Breathnach (Louth, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I remind Deputies that they are interfering with the taking of other questions. I ask them, therefore, to stick to the time allotted.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am well aware of the difficulties and challenges people face in the housing market across the country, whether they are looking to buy, living in rental accommodation or worried about the direction their rent is taking. I am as aware of them as the Deputy.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister is creating them. His party is-----

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What I do not need from the Deputy every time an effort is made by the Government to try to address the housing issue, for example, we made over €5 billion available to be invested in the provision of social housing is it being condemned as being insufficient by Sinn Féin which at no time explains to us from where we will get the additional resources.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister should answer the questions asked.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

Tax the accountancy firms.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What I have done is acknowledge the role REITs can play in dealing with the issue of housing supply. REITs, in particular, play a role in the release of commercial property which we also need. I have clearly outlined how income generated from REITs is taxed. It is taxed in different ways, depending on where one is resident. There is also the dividend withholding tax which has not been acknowledged by any Deputy who has criticised what I have said, but, of course, it is always the case.

Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The dividend withholding tax applies to IREFs.

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As much as I appreciate the Deputy's interruptions, it would be helpful if he were to make these points in the time available to him, but I will continue to do my best to answer the last set of questions he asked. We have put in place measures aimed at boosting supply, while recognising the difficulties people face in the housing market. Like any taxation or policy measure, they will always be kept under review by me. I emphasise again the clear way in which those who invest in these funds pay tax.