Action on stamp duty loophole deferred (Irish Times - 2nd July 2007)
Minister for Finance Brian Cowen has deferred a decision on whether to close a controversial stamp duty loophole used by major property developers to avoid paying the levy.
Citing the need to avoid any “unforeseen negative effect” on the property market, he has instead opted to commission an independent study of the potential effects that closing the loophole might have.
A request inviting tenders to conduct the study is due to be issued shortly.
The decision not to implement recent legislation to close the loophole comes despite the results of a Revenue Commissioners’ survey which found 60 instances where it was used over a two-year period.
Mr Cowen has previously disclosed that Revenue believes the existence of the loophole cost the Exchequer a minimum of â‚¬40 million last year. He also acknowledged that Revenue had found its use to have become “common practice” in 2006.
Under the loophole, developers do not buy lands outright. Instead, they pay the landowner a licence fee to allow them to develop the land, leaving the purchaser of any building erected on it to pay the stamp duty bill.
Under a late Finance Act amendment, Mr Cowen tightened the rules, requiring stamp duty to be paid in any contract where landowners received a licence worth more than 25 per cent of the land’s value.
In a written DÃ¡il reply to Labour Party deputy leader Liz McManus, Mr Cowen noted that the amendment was subject to a commencement order.
“I have to consider the state of the property market before the provision comes into effect to ensure that it does not have an unforeseen negative effect on the market,” he said.
“For this reason I have decided to commission an independent study of the potential effects that such a provision may have on the market. A ‘terms of reference’ for the study is currently being finalised in my department and a request inviting tenders will issue shortly.”
In her DÃ¡il question, Ms McManus asked Mr Cowen if he planned to ask the Revenue Commissioners to carry out a detailed examination of the number of properties availing of licensing and similar arrangements to avoid stamp duty. She also asked if Revenue had carried out an estimate of the amount of money involved between 2002 and 2007.
Mr Cowen responded: "Developers are not required to bring such arrangements to the notice of the Revenue Commissioners.
“However, I am also advised by the Revenue Commissioners that, in the course of a recent review, based on a survey of developers, of these arrangements, 60 instances of this type of transaction were identified in responses relating to the two-year period ending on December 31st, 2005.”
Figures published last week revealed that house prices fell for the third month in a row in May, and have dropped by more than 2 per cent so far this year.
According to the house price index from Permanent TSB and the Economic and Social Research Institute, buyers also paid an average of almost â‚¬2,500 less for a property in May than they did in April.