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Government accused of facilitating tax avoidance by vulture funds

Social Democrats TD Stephen Donnelly told TheJournal.ie that the government sold a €400 million loanbook for just €80 million

A 2014 protest by homeowners against the sale of their mortgages to unregulated investment firms
A 2014 protest by homeowners against the sale of their mortgages to unregulated investment firms
Image: rollingnews.ie

THE GOVERNMENT HAS been accused of facilitating wholesale tax avoidance after it emerged that a vulture capital firm is liable to be taxed on just €1,000 of its €4.5 million profit.

Speaking in the Dáil today, Social Democrats TD Stephen Donnelly asked why the Government sold a loanbook for distressed mortgages for just €80 million, when the hedge fund that bought it now values it at €400 million.

Donnelly called the accounts of the vulture firm that bought them, Mars Capital, a “masterclass in tax avoidance”, with around  €1,000 in taxable profit from income of over €4.55 million.

He said:

Will the Government launch an investigation into the tax affairs of all these funds that purchase these mortgages in Ireland to ensure not just tax compliance – as tax avoidance is legal – but that the real profits and capital gains that these funds make will be declared properly in Ireland and taxed accordingly?

KPMG Special liquidators Eamonn Richardson and Kieran Wallace of KPMG Source: Rollingnews

Today in the Dáil Donnelly spoke of a Kilkenny couple, Sarah and Dominic, who bought a home for their two kids and themselves in 2007.

In 2014,  the government sold their mortgage to Oaktree Capital, which is now evicting the couple and their two children via Mars Capital, the company Oaktree set up to buy thousands of distressed Irish mortgages.

He said that Sarah and Dominic would had been able to buy the property if they had received the same discount afforded the US investment firm.

IBRC 3 A 2014 protest by homeowners against the sale of their mortgages to unregulated investment firms

The call to investigate the tax avoidance practices by unregulated mortgage companies follow revelations that one such fund – Mars Capital - bought almost 1,500 Irish home loans from IBRC for just 42% of the amount owed.

The homeowners were denied the chance to buy their mortgages when they were put up for sale by the IBRC special liquidators in 2014.

The homeowners involved remain liable for the full amount of the original debt

As revealed by the Sunday Times, the accounts for Mars, an affiliate of the US private equity group Oaktree Capital Management, show it paid €154.7 million to buy 1,462 mortgages included in IBRC’s Sand portfolio — just 42% of the €363 million owed.

Hedge Funds John B. Frank, vice-chairman of Oaktree Capital Management Source: AP/Press Association Images

A second portion of 1,866 IBRC mortgages, Project Pearl, was acquired by Mars for 76% of the €329.7m owed by borrowers.

In 2014, the special liquidators to IBRC, Kieran Wallace and Eamonn Richardson of accountants KPMG, told the Oireachtas finance committee that around 10% of almost 12,000 borrowers whose loans were included in the Sand portfolio, expressed an interest in buying their mortgages.

Donnelly IBRC 4 TDs Simon Donnelly and Mattie McGrath in 2014, with homeowners protesting the sale of the IBRC loanbook to hedge funds Source: Rollingnews

But they said that selling the loans individually to borrowers was “not practical”, due to cost and protecting borrower confidentiality.

In May 2014, some of these homeowners staged a protest at KPMG’s offices.

“Oaktree put up €80 million of their own money, they now have an asset worth about €400 million,” Donnelly told TheJournal.ie.

I don’t think based on the accounts they’ve submitted, that they intend paying any tax on any of it.

“It’s blatant tax avoidance, and this is just 1,400 mortgages.

“Tens of thousands of mortgages have been sold to various funds - so how much of untaxed money are leaving the country?”

It would appear that this government is guilty of facilitating wholesale tax avoidance by international investment firms making windfall profits here from ordinary people trying to pay mortgages.

Oaktree Capital holds multiple investment firms in the Cayman Islands.

IBRC IBRC

He said the firm’s accounts indicate that the interest income minus the interest costs for the year come to €4,559,904. Donnelly added:

Astoundingly, the figure for administrative expenses against that is €4,558,904, leaving exactly €1,000 in taxable profit.

Read: The vulture fund paying very little tax on its billion-euro Irish incomes

Read: Should the government buy houses back from vulture funds?

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