Tax-free funds once favoured by ‘vultures’ fall €55bn

Regulator attributes decline to the decision of funds to exit their so-called ‘section 110 status’

The closing of a loophole that had allowed so-called “vulture funds” to boost their profits on distressed Irish property loans helped scupper the tax-free status of funds worth up to €55 billion in recent months, official figures suggest.

Statistics released on Wednesday by the Central Bank showed the total value of Irish-registered special purpose vehicles (SPVs) – a tax efficient type of company structure that was used by several "vulture funds" here – fell by €58.6 billion to €674.5 billion in the first quarter of 2018.

The regulator attributed about €55 billion of this decline to the decision of a small number of very large funds to exit their so-called “section 110 status”.

This special tax-efficient status was created by the State two decades ago to attract foreign securitisation funds to Ireland.


Following the financial crash, however, it was exploited by a number of mostly US “vulture funds” who hoovered up property loans from insolvent Irish banks, before housing them in section 110 SPVs that were structured to avoid tax.

Following media reports throughout 2016 that highlighted how US funds were avoiding Irish tax on Irish property assets in this way, it became a matter of significant political controversy. Michael Noonan, the former minister for finance, responded to the pressure by shutting the loophole.

Fresh guidelines

He effectively banned section 110 status on assets derived from Irish property, but allowed it to continue for other forms of securitisation as originally intended. The changes were outlined in detail in the Finance Bill in January 2017.

Although the loophole was shut well over a year ago, it did not have a significant dampening effect on the total value of funds that were declaring section 110 status to the regulator in statistics released over the course of last year.

There was a major spike in the first quarter of 2018, however. Sources suggested this could have been influenced, in part, by the Revenue Commissioners in February issuing fresh guidelines on who qualifies for section 110 status.

Sources also suggested the possibility that some funds could also have influenced in their decisions by recent tax reform in the US.

It is understood that a couple of the biggest US funds in Ireland ended their tax-free status recently, although their identities will not become clear until they file their next sets of accounts, when this must be disclosed publicly.

One of the highest-profile funds to have utilised the section 110 structure in the past was Cerberus Capital, which registered a slew of them under the Promontoria umbrella moniker.

Russian link

Separately, the figures released by the Central Bank this week also show a near €4 billion decline in external financing by Russian-sponsored SPVs.

Many Russian energy and transport companies, and also several Russian banks, have resorted to using Irish SPVs to house assets tax-free.

However, academics such as James Stewart, associate professor in finance at Trinity College Dublin, have repeatedly warned that Russian-linked Irish SPVs are at risk from damage to the Russian financial system and economy, which has been hit by western sanctions.

The Central Bank figures note that after the UK and US, Russian-linked SPVs are among the most prevalent in the Irish system.

Mark Paul

Mark Paul

Mark Paul is Business Affairs Correspondent of The Irish Times. He also writes the Caveat column