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Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: Let me explain the purpose of the amendment. The gross roll-up regime is time-capped for Irish resident investors. That means that when there is distribution, the investor will pay tax at that point in time at the marginal rate. Currently, for a non-resident investor, there is no distribution in the seven or eight-year period; therefore, there is no taxable event and, effectively, no tax...

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: On the assumption from which the Deputy began, on the CGT liability for an Irish investor, I do not think it is true. In terms of the tax avoidance measures and what we are trying to achieve in this section, the Deputy and I are trying to achieve the same thing. We want to make sure that we will not be back here in 12 months saying the Deputy was correct or not, as the case may be. We want...

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: There has been a misunderstanding of the way funds are treated for tax purposes and of what this change will mean. It will not bring new possibilities to avoid tax. It will not change the current position for Irish investors in funds. The purpose is to introduce two new taxes.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: No, it is not retrospective. The CGT exemption was introduced in a previous budget in respect of holding a property for seven years. This does not apply to that.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: For clarity regarding the previous discussion with Deputy Donnelly, which Deputy Pearse Doherty picked up on as well, the current situation is that the normal tax treatment afforded to Irish collective investment funds means that the moneys invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, as is standard...

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: The Deputy is correct to state it was not anticipated we would have this situation. We are now trying to address it through the amendment. In so far as CGT is concerned, this is a policy decision in trying to incentivise the holding of the asset for a longer-term period. This is why it is being introduced for disposal within a five-year period. This policy decision has been taken to try...

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: That is the case.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: That is correct.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: That is correct.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: The 10% figure is seen to constitute a controlling interest in the fund. It comes from OECD guidance that we set it at 10% because of this controlling interest.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: If one is holding less than 10%, then one is essentially blind as to how the fund is investing. Accordingly, one does not have a controlling interest. That is why if one is holding over 10%, one would be liable for the tax and would not be able to write it off against taxes in one's own country.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: In that scenario, the investor has not necessarily made the decision to invest in immovable property. It will only be considered fair, in so far as their investment in the fund is concerned, that they would be able to reduce that to, say, 15% if it was in the US.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: This is based on best practice under OECD guidelines. Reciprocal arrangements are in place in terms of that 10% in other countries. That is how this works itself out. The OECD has this point at 10%. Above that, it would be a controlling interest and, therefore, would be taxed differently.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: There is the same reclaim in REITs. My understanding from the officials is that one can do that with a REIT. Where the tax treaty is in place and because the dividend is paid by the REIT or the tax is paid to the State, it can, therefore, be used as a credit against the taxes one paid at home.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: The US treaty does not follow OECD guidance. However, that treaty is being renegotiated.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: With a REIT, there is a much higher profit distribution threshold. It operates in a different way in terms of the distribution it makes and how often it makes them. What we are doing here is working to the best OECD practice, in so far as making this determination at 10% and what might apply then to that investor versus the person who might be seen to have a more blind or passive investment...

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: We are working to OECD best practice on this. The intention is to be consistent with OECD guidance. We have to see what that will mean with our tax treaty with the US. We have to keep our tax treaties in mind and we have to keep in mind the OECD's guidance.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: Is the Deputy speaking about the capital gains tax, CGT, exemption?

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: Is the Deputy speaking about the note on the taxation of funds before the changes come into effect?

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach: Finance Bill 2016: Committee Stage (Resumed) (15 Nov 2016)

Eoghan Murphy: Okay.