John McManus: Outrage over vulture fund tax avoidance rings a little hollow

Charties have been used for years to reduce tax on international deals done from Dublin

The fuss over the use of charities for tax avoidance by vulture funds investing in Irish property may have revealed something about the limits of the Irish social contract regarding the taxing of foreign companies.

The logic behind how we tax multinationals is pretty well understood and accepted. We tax them very little. We have created a very robust and relatively transparent corporate tax system to facilitate this. The wheels of the system are greased by a network of professional intermediaries. In return we get investment, jobs and downstream tax revenues such as income tax and VAT.

There is a high level of buy-in right across the political spectrum because we all seem to understand that these companies simply would not be in Ireland if we did not incentivise them. The jobs and the economic activity they undertake would go somewhere else. So, even if we hardly tax them at all, there is still a net gain to the economy.

Most people don't really need to have it spelled out to them that a small island off the edge of Europe is not the obvious place for an American company to put its European, Middle East and Africa headquarters. As a result the ludicrously low tax rates paid by big multinationals operating here go unremarked upon.


The tax structures being used by the funds buying up Irish property assets that are causing so much controversy are really just an extension of this long-standing arrangement. Most of the schemes they are using were originally developed to encourage international companies to route business through Ireland that would otherwise have gone elsewhere.

One of the more contentious aspects of these schemes, the use of Irish-registered charities to hold assets, has been known about for years.

In 2009 this paper reported that charities associated with a Dublin law firm Matheson were being used as part of a scheme, managed by a US hedge fund, to buy up bonds in a collapsed Icelandic bank.

High-minded activities

There was a certain amount of tut-tutting at the time, given that the charities involved had as their express purpose all sorts of high-minded activities such as the the relief of poverty, deprivation and distress. But ultimately nobody seemed that bothered about the use of Irish charities to help US investment funds reduce or avoid tax on big international deals.

But the use of Irish charities to help US investment funds reduce or avoid tax on big Irish deals is for some reason a very different kettle of fish.

Social Democrat TD Stephen Donnelly has made a lot of the running in this regard. He highlighted in the Dáil a company called Mars Capital linked to a US fund called Oaktree. It has paid €250 in tax on profits of €9 million made from distressed Irish assets including home loans bought from IBRC, the former Anglo Irish Bank and Irish Nationwide. Various other investment funds such as CarVal, Goldman Sachs and Cerberus have also been outed as using similar schemes.

Full-blown investigation

Donnelly told the Dáil that the use of this and other loopholes could result in the state missing out on tens of billions in tax. He wants a full-blown investigation and the

Department of Finance

has responded by saying that it is examining recent media coverage of of the use of certain vehicles for property investment. The Revenue Commissioners have also taken an interest.

The question is why now? Why is it different this time? The use of these structures has been going on for years. It was no secret.

Apparently it is no problem to use an Irish charity to set up an elaborate structure to minimise the tax bill on an international deal. Nobody in Ireland really cares if the Icelandic or any other government loses out on some tax because a deal involving the bonds of defunct Iceland banks was routed through Ireland.

Irish scheme

But it is something else entirely for these structures to be used to minimise the tax paid on a deal in Ireland involving Irish assets. Particularly if these assets were sold by the Government as part of a State-backed scheme to rescue the bank that cost the tax payer billions.

It seems we do care when we are the losers.

It may all seem a little disingenuous to the US funds caught up in the middle of this outburst of righteousness, but when you measure it up against the ambiguity and ethical gymnastics at the heart of our corporation tax strategy, it makes perfect sense.