Law firm defends use of charities to help hedge funds cut tax bills

Matheson’s Medb Charitable Trust, Badb Charitable Trust and Eurydice Charitable Trust own shares in Irish companies linked to global financial institutions

The arrangements using charities are part of tax-efficient structured finance deals aimed at attracting the institutions to set up “special purpose vehicles”in Ireland to house the high-risk assets. A team of economists from the Central Bank last month published a report on the use of these types of structures

The arrangements using charities are part of tax-efficient structured finance deals aimed at attracting the institutions to set up “special purpose vehicles”in Ireland to house the high-risk assets. A team of economists from the Central Bank last month published a report on the use of these types of structures

 

Matheson, Ireland’s biggest corporate tax firm, uses three charities registered to “relieve poverty and distress” to help hedge funds and banks pay less tax on billions of euro in high-risk assets, such as weather “catastrophe bonds”.

An analysis of company records by The Irish Times shows that Matheson’s Medb Charitable Trust, Badb Charitable Trust and Eurydice Charitable Trust own shares in scores of Irish companies linked to global financial institutions.

The arrangements using charities are part of tax-efficient structured finance deals, common in the financial industry, aimed at attracting the institutions to set up “special purpose vehicles”in Ireland to house the high-risk assets.

A team of economists from the Central Bank last month published a report on the use of these types of structures, which said they potentially pose risks to financial stability because so little is known about them.

Matheson, which defended such use of registered charities as standard practice, is not the only firm to use the structures.

However, the Medb, Badb and Eurydice charities appear to be among those most frequently used by global hedge funds and banks to help cut tax bills.

Charity trust

The charity trust arrangements benefit the institutions involved by keeping the assets, which also include mortgage-backed securities, off their balance sheets.

The charity holds the shares in trust for the institution, which can often be difficult to identify from the documents.

This identification difficulty was highlighted in the Central Bank report.

Medb, Badb and Eurydice hold shares in a slew of companies, such as Queen Street Capital iv, which is listed in Bermuda and is currently in liquidation.

It appears to be linked to the insurer Munich Re, and has assets of €103 million.

It issues securities linked to so-called catastrophe bonds derived from the risk of hurricanes in the US.

Equity giant

The registered charities also own the shares in a large number of companies linked to private equity giant KKR. One of these, Avoca Clo Vi, has assets of €350 million.

Another company owned by the charities, Matchpoint Finance, is linked to BNP Paribas and has assets of about €4 billion.

Star Compass, linked to UBS, has assets of €3.3 billion, while Silk Finance No 3 has assets of €615 million, which appear to be mortgage-backed and linked to Banco Santander’s Portuguese unit.

There are scores of other companies owned by the charities linked to many of the world’s biggest financial institutions.

Matheson strongly defended its use of the three registered charities in the tax-efficient structured finance deals.

Collect fees

It said the charities, which collectively operate as the Matheson Foundation, collect fees from the institutions, from which funds are distributed to good causes.

Matheson said its foundation would pay out about €250,000 to good causes over the next two years.

It has supported charities including St Vincent de Paul and the Make a Wish Foundation.

Company accounts for Medb, for example, show it made donations of €48,000 in 2013 and has accumulated surplus funds of €470,000. Matheson solicitors holds €425,000 on its behalf, the accounts state.