Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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77. To ask the Minister for Finance the annual cost of tax relief for real estate investment trusts since they were established; and if he will make a statement on the matter. [6307/16]

Michael Noonan (Limerick City, Fine Gael)
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Finance Act of 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland.  A REIT is a collective investment vehicle designed to hold properties in a tax neutral manner.  I am informed by the Revenue Commissioners that there are currently three REITs established and operating in Ireland. 

The function of the REIT framework is not to provide an overall tax exemption, but rather to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle. 

In general, the trading profits of companies in Ireland are subject to Corporation Tax at 12.5%. Rental profits of companies are subject to Corporation Tax at 25%. Rental profits arising in a REIT are exempt from Corporation Tax. However, profits from any other activities are subject to Corporation Tax in the normal way.

As such, the estimated cost attached to the REIT 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.  The extent of any net tax cost of the REIT exemptions will therefore be the difference between the tax which would have arisen on the property income in non-REIT ownership, and the tax charged on the dividends paid out of that property income by the REIT to their investors.  The REIT legislation requires that 85% of all property income profits be distributed annually to shareholders.  

Any potential loss of tax relating to foreign investors is due to the difference between how company dividends are taxed in the hands of foreign investors compared to how profits from direct ownership of property are taxed. Ireland, in line with most countries, retains the right to tax profits arising from land and buildings in the State, regardless of where the owner is located.  In contrast, taxing rights for dividends are usually divided between countries, based on tax treaty agreements. In general, Ireland allows for dividends of Irish companies to be paid to shareholders resident in treaty partner countries without any liability to Irish tax.  This is because tax should already have been paid on the company's profits in Ireland the dividends are paid out of the after-tax profits of the company and the dividends received will form part of the shareholder's income for tax purposes in their country of residence.

In the absence of any other provisions, foreign REIT shareholders would not have had any liability to Irish tax on REIT dividends, despite the fact that the REIT itself benefits from a tax exemption on qualifying profits of the rental business.  In order to ensure that tax from foreign investors is retained, a Dividend Withholding Tax (DWT) at the standard rate of tax was legislated for to specifically apply to REIT dividends.  Foreign investors from treaty resident countries may be able to reclaim some part of this DWT if the relevant tax treaty allows for this.  The taxation of dividends varies from treaty to treaty, but commonly a source state would retain the right to approximately 15% tax on dividends paid from that state.

REITs are publicly listed companies, meaning their Financial Statements are publicly available, but the specific figures required to calculate their rental profit (the portion of profit that is exempt) is not necessarily available in these public documents. I am advised by the Revenue Commissioners that for reasons of taxpayer confidentiality, it is not possible to comment on specific details of rental profit, if any, of the limited number of REITs currently operating in Ireland.