Department of Finance closes vulture fund loophole

Michael Noonan said the change would take effect immediately

Mr Noonan said the issue of the use of charitable trusts by section 110 companies is subject to a separate review. Photograph: Frank Miller /	THE IRISH TIMES

Mr Noonan said the issue of the use of charitable trusts by section 110 companies is subject to a separate review. Photograph: Frank Miller / THE IRISH TIMES


The Department of Finance has moved to close off a controversial loophole that allows so-called vulture funds to avoid tax on profits made buying and selling Irish property assets. The new rules come into effect immediately, although the Minister for Finance, Michael Noonan, flagged that he would consider changes in the upcoming Finance Bill.

The Minister has published a proposed amendment to section 110 of the Finance Act 1997 to be included in the Finance Bill, which will be published after Budget 2017 is announced next month. However he announced on Tuesday that the proposed changes would come into effect immediately, meaning that vulture funds will not be able to use Section 100 vehicles to avoid profits on sales of Irish assets.

The change had been expected but the speed of its implementation will take investors and advisters by surprise. Speaking this morning, Minister of State at the Department of Finance, Eoghan Murphy, said on RTE: “This is not about the morality of making profits, it is about the morality of paying taxes on profits.”

Section 110 was set up for a good reason, he said.” Something happened to it subsequently, for whatever reason. Once a loophole has been brought to our attention it is important that it is closed down.”

Section 110 has allowed foreign investors to acquire billions of euro of distressed assets in Ireland without having to pay tax on profits made from their sale, using legislation originally intended to allow for the flow of international funds through the IFSC.

“A number of concerns have been raised recently about the possible use of aggressive tax practices by some section 110 companies to avoid paying tax on Irish property transactions. In light of these concerns, and due to the highly technical and complex nature of the amendment I am now publishing a proposed amendment,” said Mr Noonan.


“The proposed amendment targets the issues that have been raised and will ensure that the Irish tax base is appropriately protected. Further targeted proposals in relation to the use of funds in the Irish property market are also being considered,” he added.

A number of investigations into the use of tax loopholes that allow vulture funds to escape paying tax – other involving the use of registered charities in tandem with the section 110 rules – have been initiated in recent months. These include one from the Charities Regulator, which has been examining the use of charitable trusts associated with Dublin law firm Matheson and other legal firms to provide services to investors, including acting as registered owners of a number of the funds.

Former Social Democrats and now Independent TD Stephen Donnelly told the Dáil earlier this year that Mars Capital, an Irish subsidiary of a US vulture fund, is owned by the Matheson Foundation which, he claimed, may own up to 200 companies.

Charitable trusts

Mr Noonan said the issue of the use of charitable trusts by section 110 companies will be subject to a separate review.

“I am publishing this proposed amendment to address the perceived misuse of section 110 and to ensure that the tax provisions are ring-fenced for bona-fide securitisation purposes. The securitisation and funds industries are essential areas in the broader IFS sector, a sector which now employs over 38,000 people directly in over 400 companies, 200 of which are Irish owned,” he said.

Mr Noonan said he would give due consideration to further amendments proposed.

“If any further abuses of the section 110 regime are identified, further measures may be brought for my consideration for the finance Bill,” he said.

Section 110 was introduced as a measure to boost the funds industry in the IFSC, where companies typically manage large amounts of money on behalf of clients. However in recent years the major funds who have bought Irish assets in the wake of the crash have used section 110 to shelter the profits made on their holdings from Irish taxation.