Carol Nolan (Laois-Offaly, Independent)
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212. To ask the Minister for Finance the measures being taken by his Department to tackle the aggressive tax avoidance behaviour engaged in by Irish real estate funds and real estate investment trusts; if an assessment has been made by the Revenue Commissioners with respect to calculating the amount of tax that has been avoided by IREFs and REITs from 2018 to 2020; and if he will make a statement on the matter. [4040/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. The purpose of the REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors to direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply. REITs are required to distribute 85% of all property income profits annually to investors. Dividend Withholding Tax (DWT) at a rate of 25% must be applied to these distributions, other than those distributed to certain limited classes of investors such as pensions and charities as they are more generally exempt from tax.

An Irish Real Estate Fund (IREF) is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-residents to invest in Irish property. Generally IREFs must deduct a 20% withholding tax on distributions to non-resident investors. Certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings are generally exempt from having IREF withholding tax applied provided the appropriate declarations are in place. Irish resident investors may be subject to the investment undertakings exit tax, at a rate of 41%.

In 2019, officials in my Department produced a report on Real Estate Investment Trusts (REITs) and Irish Real Estate Funds (IREFs) as respects their investment in the Irish property market. The report was presented to the Tax Strategy Group and published in July 2019. It provided a basis for policy discussions and the amendments which were introduced in Finance Act 2019.

In relation to REITs, Finance Act 2019 extended the obligation to deduct DWT to include distributions of the proceeds of capital disposals. If the net proceeds from such capital disposals are not re-invested in the REIT business or distributed within a 2 year period, they become part of the profits of the REIT business, 85% of which must be distributed annually. In addition, the deemed disposal provisions upon cessation of REIT status were restricted to REITs that have been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term, stable investment in rental property. Finance Act 2019 also introduced a “wholly and exclusively” test when calculating the REIT profits available for distribution. This test was introduced to ensure that inflated costs, such as inflated management fees, cannot be used to reduce distributable profits. These amendments ensure the regime operates as intended.

In relation to IREFs, amendments were made to prevent the use of excessive debt and other payments to reduce distributable profits and to prevent the avoidance of tax on gains on the redemption of IREF units. In addition, the IREF return filing requirement was placed on a mandatory annual footing and the information which Revenue can request was increased to facilitate ongoing monitoring of the sector. These amendments were made to ensure appropriate levels of tax are paid by investors in Irish property.

Officials in my Department and Revenue continue to monitor the taxation of IREFs and REITS. Revenue have advised me that they analyse returns submitted by both IREFs and REITs and have measures available to them in the event of non-compliance. Should additional issues be identified I will take further action as necessary.

Carol Nolan (Laois-Offaly, Independent)
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213. To ask the Minister for Finance if his Department has introduced new anti-hybrid mismatch rules in line with commitments under the Anti-Tax Avoidance Directive; the impact these rules have brought about; and if he will make a statement on the matter. [4041/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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As part of Finance Act 2019, I introduced Anti-Hybrid rules in accordance with our obligations under the EU Anti-Tax Avoidance Directives or “ATAD”. The ATAD Anti-Hybrid rules have applied to all corporate taxpayers with effect from 1 January 2020. They are intended to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more jurisdictions to generate a tax advantage.

As the Anti-Hybrid rules took effect from 1 January 2020, it is only when corporation tax returns for 2020 are filed and analysed that the effect of these rules on Irish corporation tax receipts will be known. However, the expectation is they may not significantly affect Irish companies because our worldwide system of taxation and various existing Anti-Hybrid and anti-avoidance rules already existing in legislation have meant that hybrid structures have not been a feature of tax planning here.

It is also to be noted that Anti-Hybrid rules are not designed primarily to raise Exchequer revenue, but rather to modify taxpayer behaviour by preventing the use of hybrid mismatches to create tax advantages. The purpose of the rules is to improve the robustness of the international corporate tax system as a whole, and the coordinated introduction of Anti-Hybrid rules across all EU Member States aims to ensure their effective operation. Implementing Anti-Hybrid rules is part of a global solution to a global problem.