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Monday 25 September 2023 Dublin: 15°C
# Mortgage Arrears
It took 9 consecutive questions for bank execs to admit €1.3bn mortgage 'vehicle' won't pay tax
Last week the bank confirmed it was transferring more than 6,000 home loans into a special purpose vehicle. / YouTube

PERMANENT TSB HAS confirmed that the ‘special purpose vehicle’ that more than 6,000 of its mortgages have been transferred to will be exempt from tax. 

Chief executive of PTSB, Jeremy Masding, appeared before the Oireachtas Finance Committee today, along with other executives from his bank and from Pepper in Ireland.

Last week the bank said it had come to a ‘securitisation agreement’ to move these loans to a special purpose vehicle which will be financed on the bond markets. The gross value of the bundle in what has been dubbed Project Glenbeigh is €1.3 billion.

Pepper will service these mortgages – the majority of which are primary dwelling houses – for the vehicle. This means communications and payments will go through Pepper. 

Today TDs and Senators sought clarity on how this transaction will work and what it will mean for customers. 

Sinn Féin’s Pearse Doherty attempted to confirm with executives that the set-up of the vehicle, also known as a Section 110 company, will operate tax-free. The Oireachtas legislated to close loopholes that had allowed vulture funds to avoid paying tax. 

‘Nothing to do with tax’

Doherty said with Project Glenbeigh, Permanent TSB had “found a [completely legal] way round it”. 

Because of the fact that you will hold 5% of the beneficial interest in this fund will now exempt you from tax in relation to the interest, it’ll exempt the whole vehicle from tax – is that not the case?

Eamonn Crowley, PTSB’s chief financial officer responded: “No, we’re required under law to hold 5%, deputy, that’s the requirement. It’s nothing to do with tax.”

In an exchange back and forth for several minutes, Doherty continued to ask Crowley whether this company structure allowed the ‘special purpose vehicle’ to avoid paying tax. 

Doherty: “Will the fact that you hold 5% of the SPB vehicle, which we don’t have a clue who owns it, exempt them from tax as a section 110 company? Doesn’t it avoid and doesn’t the prospectus [for Project Glenbeigh] specifically mention the legislation that we introduced in this committee to actually close this loophole?”

In the prospectus you have a way around it because of the fact that Permanent TSB, as the originator of these loans, will hold a beneficial interest of 5%. Is that not in the prospectus in black and white? If you don’t want to admit it I can read it out to you if you want.

Crowley: “We’re required as the originator to hold 5% deputy, that is the requirement of being an originator.”

Doherty: “And does that fact allow this vehicle which you will have 5% interest in and whoever else the bondholders are will have the other 95%, avoid them paying tax as a result of Permanent TSB holding 5%?”

Crowley: “As originator we’re required to hold 5%.”

Doherty: “Do you know the answer or are you just going to repeat that point over and over again because I can go and read – I’ll actually read it out if that’s okay.”

He went on to read from the prospectus, which states that PTSB will retain an economic interest in the vehicle for the purpose of securitisation. And that, accordingly, the transaction should be “exempt from the documented deductible restrictions pursuant to Finance Acts 2016 and 2017″. 

Doherty: “Is it not the case that this vehicle which permanent TSB will have an interest in – 5% – will be exempt from tax as a result of the structure?”

Crowley: “The reason, as I outlined to the Deputy before for the creation of the securitisation vehicle is that we would try to find a long term investor which would match the requirements of the customer in that regard, ie create the securitisation vehicle and find an investor. It was in no means to do anything with regard to tax issues.”

Doherty: “Are you exempt from tax?”

Crowley: “PSTB are not exempt from tax.”

Doherty: “No, this vehicle which you will have 5% economic interest in.”

Crowley: “It is as I understand a Section 110 company and the regulations would apply to as such, but the core issue with regard to creating the securitisation vehicle is we could, instead of a pure loan sale…”

Doherty cut in here and moved to Cormac Ryan, CEO of Pepper in Ireland. He asked Ryan to acknowledge that in two separate sections of the prospectus it states that the vehicle being set up will be exempt from tax and will avoid the restrictions passed by the Oireachtas.

Ryan said he was not best positioned to answer in terms of the tax status of the vehicle itself.

“This is the difficulty. Yous won’t admit something that is black and white,” Doherty told him.

You won’t admit it, because you know why? Because the public are outraged at what Permanent TSB has done and this is a double outrage, the fact that you’re now offloading these mortgages to a vehicle you will benefit from as the CEO of a bank, to a vehicle that has circumvented our tax codes. Legally, but it’s done that way and you won’t admit it.

PTSB’s chief executive then stepped up to the plate, telling Doherty that the bank was legally obliged to take 5% interest and that the tax status of the vehicle “comes with the design of the structure”. 

It’s in the prospectus as you say, let’s not repeat what’s in the prospectus.

When challenged again by Doherty, he told him: “I’ve just acknowledged that what you say in the prospectus are the facts.”

He was later thanked by a visibly frustrated Doherty for giving him an answer to the question he had asked nine times to three people. 

Thanks for actually giving me an answer in terms of that it will be tax-free. This really pisses a lot of people off because there’s investors there, multi billion euro investors. 95% of the profit made from this securitisation vehicle will be tax-free – it will all be tax-free, but they’re the ones benefiting from it.

‘An attractive proposition’

In his opening statement, Masding told committee members that the portfolio is made up exclusively of borrowers whose loans are”non-performing”, but who are currently meeting the terms of restructuring arrangements.

“The customers are engaging, have a proven record of meeting the terms of restructuring agreements and generate a steady stream of cashflow.”

He said that by focusing on loans that are adhering to agreements, producing consistent predictable cash flow, they had made the securitisation vehicle “an attractive proposition for long term investors”.

Cormac Ryan of Pepper sought to assure customers impacted by the transfer that their rights have not changed. He said if a borrower’s circumstances do not change and customers engage in a review process, there is a legal obligation to continue with the restructuring arrangement.

“Every case is different and Pepper is known for taking an individual and personal approach to working with customers, based on a deep understanding of their circumstances.”

He said it is his hope that customers in the portfolio “will come to view their engagement with us as a positive experience and that we have treated them in a fair and transparent way.”

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