Bríd Smith (Dublin South Central, People Before Profit Alliance)
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65. To ask the Minister for Finance the projected loss of tax revenue from the tax exemptions granted to REITs in the coming year; and if he will make a statement on the matter. [1653/17]

Michael Noonan (Limerick City, Fine Gael)
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The Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REIT) in Ireland.  A REIT is a collective investment vehicle designed to hold properties in a tax neutral manner.  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. In order to ensure that Ireland retained taxing rights over property, dividend withholding tax on distributions from REIT to foreign investors was specifically legislated for. 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.  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.