Revenue queries use of registered charities in “shadow banking”

Concerns raised about corporate law firm Matheson’s use of registered charities to facilitate the tax avoidance

A senior State tax official has raised concerns about corporate law firm Matheson’s use of registered charities to facilitate the tax avoidance and potentially risky shadow banking activities of global hedge funds and lenders.

Although such use is considered standard practice within the financial sector, Aine Hollingsworth, a principal officer in the financial services division of the Revenue Commissioners, emailed Ronan Hession, head of business tax at the department, in April to question if the charity regulator should "allow that sort of set-up".

Ms Hollingsworth was commenting on an Irish Times story days previously about the growth in Dublin of special purpose vehicles (SPVs) set up by global financial institutions.

SPVs are tax-efficient structures used by financial institutions to house risky assets such as distressed debt instruments or so-called catastrophe bonds, which allow insurers spread risks linked to weather events or acts of terrorism.


Dublin has become a hotbed for SPVs and similar structures and the Central Bank is currently examining the risks they pose to the Irish financial system, after its economists warned regulators need to get a better grip on their activities.

The Financial Stability Board in Switzerland is also pressing authorities worldwide to get a better handle on the risks posed by shadow banking.

Matheson offers many of its international financial clients the use of three charitable trusts, registered with the charities regulator to "relieve poverty and distress", to act as shareholders for SPVs to keep the risky assets off the balance sheets of the institutions that set them up.

The use of the charities - Medb, Badb and Eurydice - by banks and hedge funds to facilitate SPVs is legal and Matheson has previously defended it as standard industry practice.

In correspondence obtained under Freedom of Information by Pearse Doherty, finance spokesman for Sinn Féin, Ms Hollingsworth emailed Mr Hession to discuss Matheson's use of the charities: " that really a proper thing for a charitable trust to do and should the charity regulator allow that sort of set-up."

Ms Hollingsworth told him she was writing a paper on the tax treatment of SPVs and similar structures. She said it would examine the “plain vanilla” use of SPVs, as well as their use in ways “that weren’t envisaged but probably aren’t abusive, and then some of what we would see as the more abusive structures”.

A spokeswoman for the Revenue Commissioners declined to comment, as did a spokesman for the Department of Finance. A spokesman for the Charities Regulatory Authority did not respond to a request for comment, while Matheson did not respond to repeated efforts to get comment yesterday.

Ireland is home to €322 billion of SPV assets, which are largely unregulated, according to the Central Bank. A further €430 billion of assets are held in similar structures known as financial vehicle corporations.

Gareth Murphy, head of markets supervision at the Central Bank, has previously said that while shadow banking can perform many useful functions and support economic activity, "we know that there are also a number of not-so-good reasons for shadow banking, such as regulatory arbitrage and spurious financial innovation."

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

Mark Paul

Mark Paul

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