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Foreign REIT investors paid between 2% and 3% effective tax on €238 million of property profits in 2015 – Doherty

22 June, 2017 - by Pearse Doherty TD

Sinn Féin Finance spokesperson Pearse Doherty TD has said data he has received through a Freedom of Information shows that Real Estate Investment Trusts (REITs) which are buying up huge amounts of housing that are paying only a tiny percentage of tax are 85% foreign owned.

Deputy Doherty said: 

“It is a scandal that foreign investors in REITs earned €238 million in profits from their Irish property holdings in 2015, but in the same year, these investors only paid €5.27 million tax to the State, an effective tax rate of 2%.

“Foreign investors in REITs are not taxed on their property rental income or capital gains upon the disposal of properties held within a REIT.

“There is no doubt that these funds are driving up house prices at time when supply is at critically low levels. Recent CSO data shows non-household buyers (a large component of which is REITs, QIAIFs & ICAVs) purchased more homes than first time buyers in the first four months of this year.

“In the first four months of this year, they accounted for 62% of new home purchases in Dublin and 44% of new home purchases nationally.  They are buying up what little housing stock is becoming available. 

“These funds are in direct competition with first time buyers and families seeking a move yet they are a huge advantage because of this government tax policy decision. 

“The only tax paid by foreign REIT shareholders is Dividend Withholding Tax (DWT), when dividends are paid to them. The rates of DWT for foreign investors vary from 20% to 15% to 0%.   

“The Department of Finance’s assertion that these REITs minimal taxation is down to a timing issue does not stack up, given that the majority of the value of REIT dividends for 2015 were paid in 2015.

“You can see in their 2015 accounts the three REITs proposed dividends of €29 million in relation to their respective 2015 year ends and actually paid dividends worth €23.8 million during the course of 2015. 

“The €5.2 million, which was not paid in 2015, translates to €1 million at most in extra taxation, when a 20% Dividend Withholding Tax is applied. This is not going to change the fact that these REITs are a gigantic tax dodge, as even with this €1 million included, it only brings their effective tax rate to 3% for 2015.

“Furthermore, foreign investors are not liable to Capital Gains Tax on the disposal of REIT shares, this means that the proportion of the annual uplift in the valuation of REITs properties held by foreign investors, seen in REIT accounts as ‘Revaluation of Investment Properties’, is outside of the Capital Gains Tax net, given that there is also no CGT when property is disposed when held within a REIT, the potential loss of CGT is huge.   

“Given that we now know from this FOI that the proportion of foreign ownership of REITs is 85% and these three REITs now own Irish property valued at €2.6 billion, with 85% of REITs owned by foreign investors who made €238 million profit per accounts in 2015 and only paid €5.27 million in tax. 

“The Government need to immediately act to change its tax policy to level the playing field for ordinary people who are being priced out of the market by billion euro funds which are getting massive tax breaks from the State. 

“The Government need to introduce a minimum Dividend Withholding Tax Rate of 25% on dividends from REITs and abolish the CGT exemption for foreign investors on their REIT shares.” 

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