Large institutional investors are making a killing in Ireland; we are well accustomed to hearing about the so-called ‘vulture funds’ who had the clout to buy in bulk.
They had the savvy and the expertise to time their Irish investments perfectly.
That is all well and good.
What would you expect such birds to do — ignore the opportunity to pick over a fresh carcass?
But to think that our legislators and regulators laid out the carcass, garnished it a little and then provided a knife and fork — that is hard to conjure with.
The more that emerges about legal tax avoidance on property investments the more difficult it becomes to argue with this analogy. Take the ICAV for example.
The Irish Collective Asset-management Vehicle was a nifty little tax structure introduced last year.
Designed to primarily facilitate the transfer of US funds into Dublin, it allows foreign investors to channel their investments through Ireland while paying no tax.
The IFSC and those big office blocks in the Dublin Docklands need to be kept busy after all.
And as long as the users of the ICAV are avoiding tax on investments made in other jurisdictions and not Ireland — then you may ask what is the issue?
Guess what? The ICAV, it turns out, can be used to buy Irish property and assets too.
Analysis of the register of ICAVs at the Central Bank shows that just over 200 have been deployed so far. As we recently reported on TV3’s Ireland Live News, over 10% of these have been used in Irish property deals.
Several of them relate to significant apartment and office block developments in Dublin city and county.
Big investors bought land and properties here at rock-bottom prices which already guaranteed the healthy margins they desire — and in many cases they will be required to pay no tax.
The Department of Finance, and Revenue, have been examining the loophole and are due to report back soon. It seems whoever constructed the legislation did not intend that ICAVs be used in such a way.
Let’s turn next to what are known as Section 110s. These are tax neutral vehicles much beloved of Dublin law firms and foreign funds.
As the Social Democrat TD, Stephen Donnelly, has noted, buyers of distressed debt and in some cases residential mortgage books, have availed of a structure that facilitates the payment of little or no tax.
Separate to the world of ICAVs and the Section 110s, we have also seen the emergence over recent years of another, again entirely legitimate, investment concept. REITs — Real Estate Investment Trusts — allow investors to take a punt on property without directly owning it.
There is a romantic notion that the plain man or woman can avail of such ‘tax-efficiency’, but in reality they are used by mammoth institutional players such as pension funds.
The REITs have done very well in the Irish market over recent years. They have snapped up huge swathes of apartment blocks at low cost.
With no end in sight to the accommodation crisis, those same apartments are likely to provide healthy rental income and profit for many more years to come.
But exactly how did the enabling legislation for ICAVs and Section 110s pass muster without unintended consequences being detected? Who lobbies for such structures so successfully?
And how did foreign institutions become so dominant in the private rented sector? This could prove to be a real test for the already damaged notion of the ‘new politics’.
Until now, majority governments have used the Dáil to rubber stamp legislation, including legislation which allowed for ICAVs and Section 110s.
When lobbyists won the argument with Government Buildings they could comfortably ignore any submissions that might later come along at committee stage.
That could change. Should an angsty opposition feel the need to scrutinise politically-charged tax breaks, the previously irrelevant latter stages of the legislative process could put a few noses out of joint along Dublin’s quays.
Paul Colgan is economics editor with Ireland Live News on UTV Ireland.