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Vulture funds using charitable status for tax avoidance being investigated

Some vulture funds are using a tax loophole to pay as little as €250 in tax in Ireland.

Image: Sam Boal/Photocall Ireland

THE MINISTER FOR Education Richard Bruton has said if there is any abuse of the tax system by vulture funds, Revenue will be keen to “stamp it out”.

The minister told RTÉ’s Morning Ireland that the Department of Finance and the Revenue Commissioners are investigating media reports that vulture funds are using section 110 in Irish tax law to pay small amounts of tax here.

Under the Taxes Consolidation Act, a qualifying section 110 company is chargeable to tax at 25%, but has its profits computed by reference to the rules available to trading companies, said the Department of Finance.

“As a result, the companies are generally structured in such a way that they are effectively tax-neutral.”

Some vulture funds are using the loophole to pay as little as €250 in tax.

Bruton said Revenue is”determined to pursue them” and will be alerting the minister if any change in the law is required to end the practice.

“If there are abuses that need to have legal loopholes closed, I have no doubt they will be swiftly moved to do that,” said Bruton.

Social Democrats TD Stephen Donnelly has been raising the issue in the Dáil in recent weeks.

He asked the Tánaiste Frances Fitzgerald earlier this month what the department was doing to investigate the matter. He pointed out then that some of the vulture funds are using charitable status to offshore their profits.

Donnelly asked if the Charities Regulator will pull charity status where that status is being used to help avoid Irish tax on Irish profits.

Fitzgerald said in the Dáil that it was clearly an issue that needs examination by the Charities Regulator.

I have been in touch with the Charities Regulator and asked him to examine the particular issues which the Deputy has raised about the granting of charitable status and how it is being used by certain companies at present.

Loss to the taxpayer

Donnelly estimates that the loss in taxes to Ireland could be in the region of €1 billion or possibly €2 billion per year.

If it is €1 billion a year, that equates to some €20 million a week in missed taxes.
The section 110 structures were set up for a legitimate reason in 1997 under the Taxes Consolidation Act.
They are now being used by nearly all of the vulture funds to take profits generated in Ireland and, very frustratingly, to take profits generated profits in Ireland by ordinary, decent families trying to pay their way out of negative equity and distressed mortgages.
Section 110 was never intended to be used to pull Irish-generated profits out of the country. This is happening on a scale that is potentially worth tens of billions of euro.

15/7/2015 New Political Parities Social Democrats Stephen Donnelly TD of the Social Democrats with Roisin Shortall and Catherine Murphy. Source: Sam Boal

Speaking on RTÉ’s Morning Ireland this morning, Donnelly said the tax loophole was set up with “broad parameters” and was not policed properly.

“What we are looking at is perfectly legal tax avoidance on a scale that the Irish state has really never seen before.”

Donnelly said the government’s response to his parliamentary questions in recent weeks was that it didn’t know anything about it.

… if that’s true, then I think it suggests a very worrying level of incompetence in government that this level of tax avoidance could go on without them knowing about it.

He said if the investigations prove that abuse of the system is taking place it needs to be “shut down right away”.

Read: New rules will mean anyone will be able to make a complaint about poor teacher performance>

Read: Government accused of facilitating tax avoidance by vulture funds>

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