Paul Mills: No option but to impose tax on vulture funds

We’ve heard much sarcasm over recent months about the so-called ‘new politics’. Unfortunately, the play acting performance of our main political parties leaves a lot to be desired.

However, maybe, just maybe, the inclusion of some of the more articulate and erudite independent politicians, such as Stephen Donnelly, or persistent tenacious politicians such as Catherine Murphy, bring something new and worthwhile to the Dáil.

The rules that the big parties have ensconced in parliament’s procedures make it awkward for isolated independent TDs to be effective, but we do, every so often, get to see the benefits that such individuals bring to our national representative assembly.

Nama was established to assist in getting out of the pickle our government got us into and in doing so it has made a major use of so-called vulture funds to bring a major part of the national debt under its control.

Over recent months, Mr Donnelly has focused not just on the activities of vulture funds but on the tax benefits, or should it be the lack of tax, being paid by the same funds. The Government didn’t, and doesn’t, seem to be too interested in dealing with the issue.

Just in case you’ve been missing the news over the last year and have no idea what a vulture fund is, let me explain it here. The definition is: “A vulture fund is a hedge fund or private equity fund that invests in debt considered to be very weak or in default, known as distressed securities.”

In our case, these funds, from all over the world, have been buying up debt on property, whether it is residential, commercial or industrial.

The simple objective is to buy as low and sell as high as possible. However, according to Mr Donnelly, the reality in the case of the vulture funds that have landed in Ireland is that they stand to make even more money by avoiding tax.

Up to now, there have been suspicions about the sale of Nama’s Project Eagle. As detailed by Mr Donnelly, Cerberus bought the Project Eagle loans through an Irish Section 110 company.

The Comptroller & Auditor report found the State probably lost €190m in the sale. That amount could, of course, be chump change when compared to the taxes that Cerberus will save.

According to Mr Donnelly, Cerberus could potentially save a large sum in tax. And it has also been speculated that the underlying assets are now worth considerably more than the amount Cerberus paid for Project Eagle. Those of us who are required to support the Irish economy, week in and week out, continue to pay our taxes and get very little for it.

The problem is that companies like this vulture fund pay little tax in Ireland. As noted in these pages in recent days, their only real contribution to the Irish economy are the legal fees to the law firms which aid their establishment.

To that end, the Central Bank estimates such fees paid here last year amounted to less than €100m.

According to yesterday’s report, there were 822 tax-efficient special purpose vehicles — SPVs — which are mostly used by other types of investment firms availing of the provisions in Section 110 of the 1997 Taxes Consolidation Act, resident in Ireland, with combined asset values of €324bn, as of the end of last year. Think of the tax take on even a small slice of that cake.

It would make the Apple €13bn tax bill seem like chump change also. The Government introduced an amendment to stop this abuse of the tax system.

Unfortunately, before the ink was dry on the paper on which it was written, legal and accountancy firms were telling their clients that they have nothing to fear as they would pay only minimal taxes in any case. So the Irish people get caught for the haircut that was applied on the bank loans when Nama purchased the assets.

It’s reasonable that the normal taxation rules should apply to these companies buying and selling thousands of properties after purchasing them, sometimes, for a song.

Yet, courtesy of the representatives of the Irish taxpayer, these companies pay virtually nothing. There are those of us who have been complaining about Apple, and other FDI companies, avoiding taxes to the tune of billions of euros.

However, Apple provides thousands of well-paid jobs, helps our balance of payments, and supports a generation of business right across the economy.