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There are yet more Irish laws that allow foreign property investors to operate here tax-free

Certain funds in operation here are seeing foreign property investors paying no tax on income. The value of property owned in these funds is in the region of €300 billion.

shutterstock_398070964 Shutterstock / RMcCoy Shutterstock / RMcCoy / RMcCoy

WITH THE IRISH government’s decision to appeal a ruling by the European Commission that Apple owes this country €13 billion in unpaid taxes, the idea of Ireland as a tax haven is very much to the forefront of the public consciousness at present.

Yesterday, Michael Noonan attended a summit of European finance ministers in Bratislava, Slovakia, and to the surprise of no-one taxation was heavily on the agenda.

It would be understandable if the durable minister had felt a little uncomfortable – if we’re a little unsure of the Apple appeal here in Ireland, in appealing it the might of the European Commission is being directly contradicted.

Last week, the government moved to close a ‘loophole’ within Irish tax law, known as the Section 110 ruling, which allowed vulture funds to buy up mortgages here but pay no tax having registered as a company with charitable status.

The existence of such funds had been raised on numerous occasions in Dáil Éireann by TDs such as (now) independent Stephen Donnelly and Sinn Féin’s Pearse Doherty.

But now it seems that those ‘loopholes’ may be just the tip of the iceberg.

A number of investment vehicles are available to foreign property investors here which allows them to pay no tax on profits.

The instruments in question, Qualifying Investor Alternative Investment Funds (QIAIFs) and Irish Collective Asset Management Vehicles (ICAVs) are official regulated fund structures.

The value of property held here by such funds is in the region of a staggering €300 billion.

And make no mistake, the Dublin office property market in particular is big business. 27% of Dublin’s office space has changed hands in the last 40 months according to property advisers Savills.

That equates to total spending of €5.3 billion. Over 25% of Dublin’s office stock has changed hands since 2013.

Savills Savills Savills

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And in the first quarter of 2016 fully 67.8% of the money spent on Dublin office property came from abroad.

So just how much tax is being avoided using these structures? That’s a very difficult question to answer, but you’re probably talking in the hundreds of millions. And it’s all legal.

How these funds work

To take one example, Kennedy Wilson Europe Real Estate (KWER), a global player in property management with interests in Britain, Italy, Spain, and Ireland, manages its Irish property portfolio via two separate QIAIFs.

Davy Stockbrokers describe QIAIFs as “an Irish regulated fund structure and the vehicle of choice for private and institutional investors who are undertaking large scale investment in real estate “.

In Kennedy Wilson’s case, the company owns a property portfolio here worth roughly €1 billion.

Rent from those properties was in the region of €26 million for the first six months of 2016 (two properties owned by KWER here are the Stillorgan Leisureplex in south Co Dublin, and Portmarnock Golf Club). And no tax was paid on that rent.

“Investments in Ireland are held through two Irish qualifying investor alternative investment funds, which are exempt from any Irish taxation on income and gains,” the company says in its half-year results for the first six months of this year.

In the same section KWER states that it is subject to 25% corporate tax on profits within its Spanish subsidiaries, and 20% on rental income from its UK investment properties. From that point of view Ireland is naturally an attractive prospect.

The Group is subject to corporate income tax at 25% on taxable profits generated within its Spanish subsidiaries. Income tax is payable at 20% on rental income deriving from UK investment properties.


Registered QIAIFs and ICAVs in Ireland are listed by the Central Bank once a month on its website. Other examples of QIAIFs operating in Ireland include:

  • IPUT property fund. One of Ireland’s largest property vehicles, with holdings worth €1.8 billion in Ireland. Most of its property is office buildings based in Dublin, with public buildings accounting for 6% of its rental income in 2015. Non-resident investors account for 27% of the fund.
  • Cedar Real Estate Fund. A fund worth in the region of €100 million. And landlord to certain Central Bank buildings for which they receive €2.65 million in rent per year. The fund is ultimately owned by Starwood Property Trust, an American vulture fund based in Connecticut. As such all rental income is tax exempt.
  • Irish Residential Properties (IRES) REIT (Real Estate Investment Trust). Ireland’s largest non-government landlord with a property of portfolio of 2,288 apartments in Dublin with annual rent payable of €40 million. A Canadian property investment group called CAPREIT owns 15.7% of IRES.

Why do these funds exist?

This isn’t an easy question to answer. QIAIFs were initially set up in the 2000s as a means of attracting foreign investors to Ireland.

ICAVs were established by the last government in 2015.

“Why are they there? Well a huge selling point is the number of people employed in funds-management in Ireland,” a senior financial source told

That figure is roughly 38,000 people by the way, according to the Department of Finance, a huge figure by any estimation.

“From a point of view of simplicity, Ireland’s regime is as simple as they come, and non-resident investors enjoy tax-free status on any income gains here,” the source said.

Half the world’s hedge funds are either managed from here or domiciled here. We’ve a very attractive tax regime here with a huge services industry built around it.
The regime is very straightforward and investors are very comfortable with that.

Sinn Féin finance spokesman Doherty meanwhile says the regime was set up “as a way of triggering investment”.

“My own view is that successive governments put up a “For Sale” sign on Ireland to push up property prices and get the market moving,” he told

08/09/2016. Sinn Fein - Billboard - Apple Tax Ruli Pearse Doherty and Louise O'Reilly of Sinn Féin Sam Boal Sam Boal

I also believe it exists to help NAMA get a better return on sales, and to help put a better view on banks’ balance sheets.

“These are sophisticated funds for sophisticated investors who know what they are doing,” Doherty adds.

We’re talking about companies that have tens of millions of rental income every year and they aren’t paying any tax on it – that is not acceptable.

Trouble brewing

Pearse Doherty objects to the word “loophole” as in the context of the Section 110 companies.

“That wasn’t a loophole, that was deliberate legislation, and it took the ramping up of political pressure to have it closed,” he says. “This is a similar situation.”

There was very little more that could have been done with Section 110 anyway as most of them have been sold off.

A freedom of information request submitted by Doherty to the Department of Finance (DOF) earlier this year suggests that Revenue officials are also beginning to worry about the tax situations of foreign investment vehicles here.

One email from Principal Officer with Revenue Áine Hollingsworth to the Department of Finance in April of this year cites a need to “come up with realistic and implementable anti-avoidance abuse rules for property funds if that is desirable”.

This concern seems to have been triggered by a report in the Sunday Times concerning the legal avoidance of Capital Gains Tax by billionaire Denis O’Brien on the sale of a property in Dublin earlier this year. That was achieved through the use of an ICAV, the Real Estate Development and Investment Fund.

14/07/2016. The National Treasury Management Agenc Minister for Finance Michael Noonan

Another email from Hollingsworth to the DOF from end-April suggests that the Revenue officer is “anxious to start on this ASAP”.

Also during April, Doherty submitted formal questions to Michael Noonan in the Dáil concerning the operation of property asset funds here, specifically QIAIFs and ICAVs.

Noonan responded:

ICAVs were introduced in 2015 as a measure to develop and enhance Irish competitiveness in the funds industry in Ireland and to promote employment in the State.
Qualifying investor funds, once authorised by the Central Bank, fall under the definition of an ‘investment undertaking’… the legislation provides a tax exemption to the undertaking itself and to certain investors, for example investors not resident in the State.

“I am… advised by the Revenue Commissioners that they are currently examining recent media coverage concerning the use of investment funds for property investments.  Should these investigations uncover tax avoidance schemes or abuse then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for my consideration.”

What should be done? What can be done?

As already mentioned, these kinds of investment funds are now well-established in the country, as is the supporting industry surrounding them.

Dismantling that industry is not really an option. But changing the tax laws might be.

“The solution is a simple one,” says Doherty. “Charge the same withholding tax seen elsewhere in Europe where non-resident investors are accumulating profits outside their own jurisdiction.”

That tax ranges in level from 20% in Britain to 25% in Spain to 30% in France.

“We need to ensure that those who are getting generous returns on property investment here are liable here for economic activity that has taken place here,” says Doherty.

At present people renting properties here are paying into these funds and not a penny is going to the state. That has to change.

The financial solution may be a simple one, but the political solution is likely to be anything but.

It took extreme political pressure to action the closing of the Section 110 loophole. It is likely to take the same again and more to change the tax laws surrounding these funds.

Read: “It’s ridiculous”: Ex-HMV staff left waiting for pay as company goes into liquidation

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