Written answers

Wednesday, 22 February 2012

8:00 pm

Photo of Clare DalyClare Daly (Dublin North, Socialist Party)
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Question 35: To ask the Minister for Finance if the use of Irish charity legislation and tax law at the International Financial Services Centre by Irish legal firms is in fact enabling massive tax evasion by international financial funds; if the Financial Regulator and the Revenue Commissioners have investigated these charitable trusts; if he will report on the outcome of such investigations and if investigations have not been held if he will order an investigation. [9849/12]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Legislation governing the regulation of charities is a matter for my colleague, the Minister for Justice, Equality and Defence. However, a tax exemption for charities is available under Section 207 of the Taxes Consolidation Act 1997. The administration of this tax exemption is a matter for the Revenue Commissioners. I am advised by Revenue that to avail of the exemption a body must be established for charitable purposes and must apply all of its income for charitable purposes only. While for reasons of taxpayer confidentiality, Revenue cannot comment on the tax affairs of individual charities they have informed me that they have appropriate procedures in place to ensure that the initial application for charitable tax exemption by each charitable body meets the necessary criteria for such exemption. Revenue has also confirmed that bodies that are granted charitable tax exemption are subject to periodic risk-focused reviews to ensure that the terms of the exemption continue to be fulfilled. All relevant matters are taken into consideration in the context of such reviews. The Financial Regulator has no role in the matter.

As the deputy may be aware, in certain financial transactions it is common practice internationally for the shares in special purpose companies (SPCs) to be owned by a public charity. In an Irish context, a typical structure for an orphan company would consist of the establishment of an Irish private limited company (i.e. the SPC), the entire issued share capital of which is held on trust for charitable purposes. The trustee holders of the share capital can be individuals or nominee shareholder companies (charitable trust companies). All of these hold their shareholding under declaration of trust executed in favour of a charity.

These structures are not tax-driven nor does Irish tax law in any way enable tax evasion. These structures clearly serve specific commercial purposes. As the SPC is not consolidated into the balance sheet of the financial institution ("the originator") that has transferred loans to the SPC, the originator can now make further loans and is no longer liable for any non-performing loans included in the assets transferred to the SPC. Furthermore, any credit risk of the originator is isolated from the underlying assets so that the investor's investment decision regarding the issued securities is based solely on the anticipated asset-performance. The issued debt of the SPC may thus achieve a higher credit-rating than the originator's own debt would have achieved.

The charity is a shareholder in the company and does not hold any assets or liabilities. All assets and liabilities are held by the SPC. It is the company, not the charity, which carries on the business — and funds are not channelled through the charity. Instead, any residual profits left in the SPC after its business is completed are paid by way of dividend to the charitable trust. SPCs are not entitled to any tax deduction for the payment of such dividends. It is likely that the total amount of residual dividends they pay, being incidental to the main business, is relatively small.

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