Debt buyer to pay tax on €1,000 of €320m profit, says TD

The Government has been accused of facilitating “wholesale tax avoidance” by international investment firms making huge profits off the backs of “ordinary decent people” whose mortgages they bought from the State.

Social Democrats TD Stephen Donnelly made the accusation as he called for an investigation into all investment firms who bought loan books in Ireland to "ensure their real profits and capital gains are declared properly in Ireland and taxed accordingly".

He claimed US investment firm Oaktree Capital Management bought thousands of mortgages for €80 million but expected to make €400 million and their accounts were a "master class in tax avoidance".

He said the firm structured its taxes so that it had “exactly €1,000” in taxable profit, with all profits and capital gains offset against costs to ensure no taxes owed.

He told Minister for Education Richard Bruton: "It would appear that your Government is guilty of facilitating wholesale tax avoidance by international investment firms making windfall profits in Ireland off the backs of ordinary decent people trying to pay their mortgages."

Mr Donnelly asked if the Department of Finance was shown directly the tax avoidance structure that these firms were going to use.

“Why was it not made part of any sale that all profits and capital gains accruing would be properly filed?”

Lost job

The Wicklow TD made the claims as he highlighted the case of a couple he named as Sarah and Dominic, from Kilkenny, with two children, who were unable to service the full mortgage on the home they bought in 2007 when she lost her job.

He told Mr Bruton: “Two years ago your Government sold Sarah and Dominic’s [mortgage] to a US investment firm and that firm is now evicting Sarah and Dominic and their two children.”

He said their mortgages and thousands of others were sold at 58 per cent discount to a firm created by Oaktree Capital Management. That would have brought Sarah’s mortgage of €350,000 down to about €140,000 which is about the value of the mortgage and what the couple could afford, Mr Donnelly said.

The Government refused to allow any of the mortgage holders to buy their loans but instead sold them to the US firm, who structured the deal in such a way that the real discount they got was closer to 70 per cent, he added.

“Their accounts show that for their €80 million investment they believe they will get a return of €400 million.”

Properly declared

He called for an investigation into the tax affairs of all investment funds who bought Irish loan books, to ensure the real profits and capital gains were declared properly in Ireland and taxed accordingly.

Mr Bruton, who was taking leaders’ questions in the Dáil, said that if Mr Donnelly “has details of some new avoidance mechanism that should be scrutinised by the Revenue Commissioners they will be more than pleased to consider those and perhaps bring forward measures in the next Finance Bill”.

The Minister said the issue of people with mortgage difficulties was very much on the Government agenda and a lot of work had been done to protect people and keep them in their homes despite financial difficulties.

He said the Minister for Justice and Minister for Social Protection this week brought proposals to Government to enhance supports available to assist those in mortgage difficulties.

Mr Bruton added that many people who could access these supports, either from fear or not knowing what’s available, had not come forward and they wanted to change that.