Vulture funds may have to wait until Christmas to learn fate

Overseas investors in Irish property may have to wait for a further two months for clarity on how the Government plans to tax structures they have used to snap up billions of euro of real estate after the financial crisis.

The Department of Finance is preparing to split the Finance Bill in two, with the first portion to be published on Thursday, which would be about 80 per cent devoted to budget measures announced last week. This would facilitate the Oireachtas Budget Oversight Committee as it seeks to come to grips with technical aspects of what was unveiled last week.

The second Finance Bill is likely to be published closer to Christmas, according to sources. They said it was not clear yet whether measures to impose tax on Irish property assets held by so-called vulture funds in tax-efficient structures such as qualifying investor alternative investment funds (QIAIFs) and Irish collective asset-management vehicles (ICAVs) would be included in the imminent Bill or deferred.

The planned legislative changes are a “large undertaking”, according to a source. “If the measures are ready to go this week they’ll be in the Bill on Thursday. If not they’ll be published later.”

Lobbying

Sources suggested it could also be possible that the Government introduce measures targeting ICAVs and QIAIFs at Committee Stage of the first Finance Bill.

The Department of Finance has been subjected to what's been described as unprecedented lobbying by property funds, accountancy firms and corporate lawyers since Minister for Finance Michael Noonan flagged in early September that QIAIFs and ICAVs were in his sights.

He also published a proposed amendment on September 6th to close off a tax-avoidance device in special purpose vehicles (SPVs), known as section 110 companies, holding Irish property assets.

Goodbody Stockbrokers analysts said last week that “well in excess” of €100 million of property deals had been put on hold since September, and that some may collapse amid fears that the transactions no longer make sense with tax added on.

Some property market participants have said that private equity firms paid hefty prices for assets bought from Nama and the banks in recent years on the basis they could use section 110s, ICAVs and QIAIFs to cut their tax bills.

Discussions in recent weeks have centred around the State imposing a withholding tax for non-resident investors in Irish property held in ICAVs and QIAIFs. It is likely a number of exemptions will apply, as the Department of Finance estimates that targeting all three structures will raise €50 million next year. This figure has been described a “prudent” by a department spokesman.

Irish residents in the two fund types are already subjected to such a tax on distributions and redemption payments, levied at a rate of up to 41 per cent.