Pearse Doherty (Donegal, Sinn Fein)
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85. To ask the Minister for Finance if consideration has been given to introducing the concept of a deemed disposal for non-resident investors in REITS and IREF, as applies to Irish resident investors in unit funds (details supplied). [53385/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Real Estate Investment Trusts (REITs) are purpose designed vehicles for real estate investment. A requirement placed on REITs is that, in general, 85% of their property income is distributed as a dividend to investors each year. This 85% obligation does not apply in years where the REIT cannot, for example because of an insufficiency of distributable reserves, make a distribution. Therefore, non-residents are charged to Irish tax on their share of the profits distributed each year.  As such, REITs are not designed to have any significant amount of undistributed property income to which a deemed disposal event could apply.

Introduced in Finance Act 2016, Irish Real Estate Funds or IREFs are investment undertakings, excluding UCITS, where 25% of the value of that undertaking is made up of Irish real estate assets. 

The provision addressed the concerns raised regarding the use of collective investment vehicles by non-residents to invest in Irish property.  The investors had been using the structures to minimise their exposure to Irish tax on Irish property transactions.

IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors.  The withholding tax will not apply to certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings.

An IREF taxable event occurs when a unit holder receives value for the accrued profits of the IREF.  In most cases this will be on the::

- making of a cash or a non-cash distribution to a unit holder; or

- the cancellation, redemption or repurchase of units from a unit holder; 

However, the other methods in which value can be realised and which therefore need to trigger the IREF withholding tax are:

- any exchange by a unit holder of units in one sub-fund of the IREF for units in another sub-fund of the IREF;

- the issuing of units as paid-up unless new consideration has been received by the IREF;

- the IREF ceasing to be an IREF or an investment undertaking.

A deemed disposal rule in the context of IREFs may not be practicable. 

At Committee and Report stages of the Finance Bill I agreed that certain issues raised in respect of IREFs and REITs would be examined by the Tax Strategy Group.  The Tax Strategy Group papers will be published in Summer 2018.