Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

The Finance Act 2016 introduced the IREF regime. The regime provides that profits arising to Irish funds from Irish property remain within the charge to Irish tax. An IREF is an investment undertaking where 25% or more of the value of the assets of the undertakings is derived from real estate assets in the State. As an investment undertaking, the profits or gains of the IREFs are generally not taxed within the fund but instead are subject to tax in the hands of the investors. Where an investor receives value from the IREF, an IREF withholding tax will apply.

Senators will be aware that anti-avoidance measures were introduced via financial resolution on budget night this year. Limitations have been introduced on interest expenses based debt to property costs and to profits-to-interest ratio. Tax is now payable at the fund level in circumstances where this ratio is breached. Another measure addresses the calculation of IREF tax bill amounts to ensure that claims are subject to IREF tax. Enhanced reporting requirements are also being introduced to ensure timely, comprehensive information is available on IREF activities. The amendments have been introduced to ensure that an appropriate yield of tax is being collected from the regime and the responsibility to pay the withholding tax is not being circumvented.

As part of the Finance Bill process last year, a commitment was made on Dáil Committee Stage to produce a report on REITs, IREFs and other section 110 companies as they invest in the property market. The report was presented to the tax strategy group in July and published. The information set out in the report has provided a basis for policy discussions and the amendments being introduced in this Finance Bill. In light of this, and the new measures that were introduced in the Bill, I do not consider it appropriate to undertake a further report of the nature proposed by the Senators and do not accept the recommendation.

Senators will be aware that the Minister, Deputy Donohoe, stated in his budget speech that Department of Finance officials had been instructed to continue to scrutinise IREFs over the coming year with a view to taking further action, if necessary.