To ask the Minister for Finance his plans to review taxation of REITS, IREFS and section 110 companies; and if he will make a statement on the matter.
The Government monitors the actions of institutional investors in the Irish property market and has taken action when abuses have been identified. Action was taken in 2016 to address concerns about the use of section 110 and fund vehicles by foreign investors to take profits derived from Irish real estate without paying Irish tax. This resulted in the introduction of the IREF (Irish Real Estate Fund) framework in 2016.
The Deputy will be aware that a number of amendments are being made to the taxation of REITs, IREFs and section 110 companies in Finance Bill 2019. A number of anti-avoidance measures are being introduced to the IREF regime to ensure appropriate levels of tax are paid by investors in Irish property, by preventing the use of excessive debt and other payments to reduce distributable profits and preventing the avoidance of tax on gains on the redemption of IREF units. In addition, the IREF return filing requirement is being placed on a mandatory annual footing and the information which Revenue can request has been increased to facilitate ongoing monitoring of the sector.
Several amendments are being made to the taxation of REITs in Finance Bill 2019, to ensure the regime operates as intended. The obligation to deduct REIT Dividend Withholding Tax has been extended to include distributions of the proceeds of capital disposals and new measures have been introduced to require the proceeds of property disposals to be re-invested in property assets or distributed within a set period. The deemed disposal provisions upon cessation of REIT status have been restricted to REITs that have been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term, stable investment in rental property.
Section 110 sets out a regime for the taxation of special purpose companies set up to securitise assets. A number of amendments are being made to the section 110 regime in Finance Bill 2019 to strengthen the significant restrictions to the deductions which a section 110 company can claim for payment of profit participating notes to a specified person. The amendments also place the section’s main purpose test on an objective basis, which will enable Revenue to more effectively challenge abuse of the legislation.
As part of the 2018 Finance Act process I committed to produce a report on REITs, IREFs and section 110 companies as they invest in the Irish property market. This report was prepared by my officials and presented to the Tax Strategy Group in July.
The importance of institutional investment in the supply of both commercial and residential property must be recognised. Rebuilding Ireland identified the encouragement of the build-to-rent sector as a key factor in improving the rental sector and acknowledged that institutional investors have the potential to provide significant investment in such projects. Increasing the supply of urban apartments is essential if we are to reach our National Planning Framework targets and reduce price pressures for tenants.
However, where such investment brings profit, a fair share of tax must be paid. Therefore, as I stated in my Budget speech, scrutiny of activities in this sector will continue and further corrective action will be taken if necessary.
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