Finance Bill to contain vulture fund tax measures after push

Government officials have made sufficient progress in recent days on draft legislation to close tax loopholes used by vulture funds holding Irish property to ensure that measures to address this will now be included in the Finance Bill on Thursday.

This week sources said that investors who used certain fund structures to hold property snapped up after the financial crisis may have to wait for the Bill to proceed to Committee State in the Oireachtas, or even the publication of a second Finance Bill before Christmas, to get clarity on how they would be affected.

It is now understood the Department of Finance and the Attorney General's office are comfortable that the planned measures are advanced enough to be included in the Bill. However, they may be still be subjected to revisions further down the legislative process as some sources have said that efforts to come up with specific measures have been rushed.

Minister for Finance Michael Noonan’s pledge to generate revenues for the Exchequer from Irish property assets contained in extremely tax-efficient qualifying investor alternative investment funds (QIAIFs) and Irish collective asset-management vehicles (ICAVs) beloved by so-called vulture funds has seen officials weigh a number of options.

Apartments

These have centred around whether the best approach would be to tax the assets in the funds, the entities themselves, or distributions to investors.

Many of the assets in the funds comprise apartments which are already captured by local property taxes, while levying an additional charge against land was largely viewed as unworkable.

Taxing the entities themselves also threw up a number of issues, including the fact that the funds are typically heavily leveraged and are structured in a way that it would be very difficult to calculate taxable income.

It is believed that officials have concluded that the easiest way to generate revenues for the State would be through a withholding tax on distributions to overseas investors. Irish residents invested in QIAIFs and ICAVs are already subject to such a tax, levied at a rate of up to 41 per cent.

Political pressure

It is not known what rate may apply to overseas investors. Sinn Féin TD

Pearse Doherty

, who alongside Independent TD

Stephen Donnelly

, has spearheaded political pressure on the issue, has advocated a tax of at least 20 per cent.

It is likely that a number of exemptions will apply to any tax as the Department of Finance estimates that a clampdown on Irish property in the two fund structures and another type of vehicle, known as section 110 companies, used by buyers of property loans in recent years, will only raise €50 million for the Exchequer next year.

A spokesman for the department has said, however, that this figure is a “prudent” estimate.