Dáil Éireann Debate, Tuesday - 13 June 2023
352. Deputy Pearse Doherty asked the Minister for Finance the effective tax rate in the form of dividend withholding tax paid by Irish real estate funds as a proportion of operating and pre-tax profits respectively in each of the years 2018 to 2022; and if he will make a statement on the matter. [27195/23]
View answerThe Irish Real Estate Fund (IREF) tax regime was introduced in Finance Act 2016. An IREF is an investment undertaking, or a sub-fund, which derives 25% or more of its market value (either directly or indirectly) from real estate assets in the State. IREFs are not subject to dividend withholding tax, they are subject to an IREF Withholding Tax (WHT) of 20% on distributions to non-resident investors. The legislative provisions exempt certain categories of non-resident investors such as pension funds, life assurance companies and other collective investment undertakings from having IREF withholding tax applied in circumstances where the appropriate declarations are in place.
Irish resident investors are generally subject to a separate investment undertaking tax, at a rate of 41% for individuals and 25% for companies, on distributions received from the fund.
In addition to a 20% IREF WHT on distributions, the Finance Act 2019 introduced a charge to income tax at the rate of 20% at the level of the IREF to counter the use of excessive debt and other payments to reduce distributable profits. The three anti-avoidance measures introduced in 2019 included (i) a debt cap, to limit excessive leveraging and resulting interest, (ii) a property financing cost ratio, to limit excessive interest rates, and (iii) a “wholly and exclusively” test to limit excessive expenses.
IREF WHT applies on the happening of an “IREF taxable event” which is essentially the passing of value or profits to the unitholder. The operating and pre-tax profits/losses of an IREF include unrealised notional amounts (such as increases or decreases in the value of property held by the IREF) in addition to realised amounts. Therefore, it is not meaningful to compare the amount of tax arising on the transfer of realised profits to investors with the accounting profits/losses of an IREF. In relation to 2020 for example, accounting losses were reported but IREF withholding tax was still collected on distributions of profits and fund-level income tax also applied.
To assist the Deputy, and subject to the clarifications above as to the nature of the profit/loss figures, I have set out in the table below information on the level of operating and pre-tax profits/losses* contained in the financial statements in respect of the years 2018 to 2021 together with the level of IREF WHT and income tax paid. I am advised by Revenue that the profit figures for 2022 are not yet available.
Table 1 – IREF Operating Profit/Loss and Profit/Loss Before Tax Figures* as per IREF Financial Statements
|
- |
2018 |
2019 |
2020 |
2021 |
|
€ |
€ |
€ |
||
|
Operating Profit (Loss) (accounting measure, including realised and unrealised amounts) |
882,634,659 |
1,159,450,861 |
(440,534,785) |
1,264,869,410 |
|
Profit/(Loss) Before Tax (& after finance costs) (accounting measure, including realised and unrealised amounts) |
522,011,935 |
724,795,840 |
(743,195,254) |
998,893,606 |
|
IREF WHT Deducted/Paid |
28,229,097 |
65,759,048 |
36,799,674 |
31,716,359 |
|
Income Tax Paid |
N/A |
6,283,716 |
16,516,637 |
12,091,918 |
|
Total Tax Paid |
28,229,097 |
72,042,764 |
53,316,311 |
43,808,276 |
*I am advised by Revenue that the profit amounts set out in Table 1 are provided for indicative purposes only and are subject to caveats and were prepared for tax compliance purposes. There can be inconsistencies in how the figures are reported by IREFs and in some cases the figures have been netted. There can also be inconsistency in the length of the financial periods, with some in excess of 12 months.
