Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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97. To ask the Minister for Finance if he will provide details of the revenue foregone in 2014 as a result of the tax breaks provided REITs; and the estimate of the tax that will be foregone for 2015. [49228/14]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that three Real Estate Investment Trusts (REITs) are listed on the Irish Stock Exchange

- Green REIT plc commenced to be a REIT with effect from July 2013

- Hibernia REIT plc commenced to be a REIT with effect from December 2013

- Irish Residential Properties REIT plc commenced to be a REIT with effect from March 2014.

I am further advised that the first tax return to be filed for a REIT will not be due until March 2015   and that consequently the Revenue Commissioners do not, at present, have data that would assist in estimating the revenue foregone in 2014 or 2015. 

It was estimated in the 2013 Budget Book that the full-year cost of the REIT framework would be approximately €14 million.  This estimate was based on an assumed REIT market size of €1 billion, together with projections in relation to REIT profitability and investor profiles.  It did not take into account the Dividend Withholding Tax that was subsequently introduced in the final REIT legislation, and which should reduce this cost significantly.

The function of a REIT is to facilitate lower-risk, sustainable, long-term collective investment in property by small and large investors alike, by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle. 

As such, the estimated cost attached to REITs relates not to an exemption from tax, but rather to the move from direct taxation of rental income to the taxation of dividends distributed from REIT profits arising from that rental income.  No significant change should arise in respect of Irish-resident investors as both rental and dividend income are liable to tax at marginal rates.  The cost relates to estimated foreign ownership of REIT shares as, in place of income tax on rental income, REIT dividends to foreign shareholders are liable to a flat Dividend Withholding Tax, which may potentially be mitigated by the provisions of a relevant tax treaty.  On balance it was felt that the benefits of REITs in attracting new sources of investment capital and providing an appropriate vehicle for collective investment in property should outweigh these costs.

It should also be noted that the estimated 2013 Budget Book cost was based on a comparison of direct property ownership to projected REIT ownership, and was not reduced to reflect the potential effect on tax revenues of other available investment formats for foreign investors.  It also did not take into account any net increase in taxable rental income which may arise as a result of the entry of new REIT investment capital into the Irish market, as these are factors which it is not possible to quantify.