Mick Wallace (Wexford, Independent)
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26. To ask the Minister for Finance the reason real estate investment trusts were introduced in Ireland, despite the fact that, according to budget 2013, they entailed a loss to the Exchequer of €14 million; and if he will make a statement on the matter. [1511/14]

Michael Noonan (Limerick City, Fine Gael)
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The introduction of tax framework for Real Estate Investment Trust companies was announced in Budget 2013, and enacted in Finance Act 2013 in March of last year, and the Deputy may recall that detailed discussion of the proposal took place at that time. I would like to highlight again that the REIT regime is not a tax relief. It can better be understood as a structural reform of property investment vehicles, allowing for lower-risk, sustainable long-term investment.

The overarching objective of the REIT regime is to remove a tax bias - caused by a double layer of taxation – which has typically discouraged collective investment in property through a company.

The 2013 Budget Book estimated cost of introducing REITs was €2 million in 2013, rising to a potential €14 million per year in a mature REIT market. The cost estimate relates to a potential fall in tax revenue related to foreign investors in Irish REITs, to the extent that REITs displace direct ownership of investment property. Direct owners of investment property are taxable under Irish income or corporate tax rules. In contrast foreign REIT shareholders will be liable to a flat Dividend Withholding Tax of 20%, with potential to reduce this to a lower rate if they qualify for relief under a tax treaty.

Where an Irish-resident investor invests in property through a REIT rather than directly, the rate of taxation is the same, so no cost is associated with Irish investors.

This potential cost to the Exchequer was felt to be outweighed by the benefits which REITs could bring to the market, including the following:

1. Attraction of new investment capital to the Irish property market.

2. Freeing up bank finance from the property market, allowing it to be re-directed to other businesses in need of bank financing.

3. A new, lower-risk, property investment option for small and large investors alike.

4. Professional property management and improvement of standards for tenants.