Irish non-resident gains tax in respect of loan sales, funds and SPVs
Irish tax law charges to tax gains of non-residents at 33% in respect of certain Irish situate assets including land in Ireland and unquoted shares deriving the greater part of their value from land in Ireland.
Collection of tax is administered by imposing a 15% withholding tax obligation on the purchaser unless advance Revenue certified clearance is obtained. On 22 April 2016 Irish Revenue issued revised guidance on when clearance is not required. This is relevant to foreign investors in Irish loans secured on Irish property, loans purchased into Section 110 SPVs and property acquired in funds.
In summary, the Irish tax authorities (Revenue) has adopted a position that a disposal of a debt secured on Irish property is a transaction on which a buyer needs to withhold unless:
(a) the seller obtains advance Revenue certified clearance,
(b) the sale is by a financial institution as part of its Irish trade,
(c) the sale is by a person exempt from capital gains tax (eg Irish regulated fund), or
(d) the sale is by a qualifying Section 110 company in the ordinary course of carrying on in Ireland a business of holding or managing or holding and managing certain qualifying assets.
Where foreigners, including private equity houses, have purchased loans at a discount to face value and wish to realise the loans, they need to be conscious that there may be obligations of both the seller and purchaser to account for Irish tax.
The Revenue position is based on the definition of the Interpretation Act 2005. This defines land to include any estate, right or interest in land and an argument that a debt secured over Irish property constitutes a right or interest in land in Ireland. Revenue has also taken the view that security over Irish land is equivalent to a shareholding in Irish land. Double tax treaties do not typically override the Irish taxing rights on Irish property related assets.
Revenue has also confirmed disposals of a unit holder or shareholding in Irish tax exempt funds are outside the scope of withholding. Hence, where non-residents have established qualifying tax exempt funds, either as companies or unit trusts, the disposal of interests in these companies or unit trusts remains free of Irish tax.
Separately, it should be noted that the acting Minister for Finance has indicated he intends to review the use of tax-exempt collective investment undertakings being able to obtain returns on Irish property free of tax.
This article was prepared by Mason Hayes & Curran, International Tax Review’s correspondents in Ireland. For further information, please contact:
John Gulliver Keogh, tax partner. T: +353 1 614 5007 E: email@example.com
Robert Henson, tax partner. T: +353 1 614 2314 E: firstname.lastname@example.org
Maura Dineen, tax partner T: +353 1 614 2444 E: email@example.com
Niamh Keogh, of counsel T: +353 1 614 5848 E: firstname.lastname@example.org