Irish Section 110 SPV, Vultures, Tax Haven, Orphaning Scam

Relocated “Vulture Fund Irish Section 110 SPVs Tax Avoidance” posts to have a separate Apple Tax Primer 101 Thread:
[Apple IP Scam Irish tax avoidance 101 explained is here:]
[Irish Commercial Property zero tax laws here:]

**This thread will explain how US vulture funds pay no Irish taxes on their Irish domestic investments (or comically, €250 tax), why it is the largest avoidance of taxes to the Irish Exchequer in State history (more than Ansbacher, Planning Tribunals, even Apple), how the scheme involves the help of the State, Irish Charities, NAMA and Irish Revenue - who have worked to keep this multi-billion Irish tax avoidance scheme (“orphaning” trick) going in the domestic Irish economy. And how three Dublin law firms - Matheson, A&L Goodbody & Dillon Eustace - developed it during the financial crises (via their “lobby group”, the Irish Debt Securities Association). It will also explain why these structures would classify Ireland as a Tax Haven (OECD definition), and how they violate EU Competition law.

It happened as a result of fee-hungry IFSC law firms, meeting a State run by ex. school teachers, in the largest crash in Ireland’s history, who were desperate to sell-off IBRC & NAMA assets quickly, in order to “win our economic sovereignty back” (i.e. get the Trokia off the ex. school teachers backs, so they could get back to their own agendas). In return for a contribution of c €50-100m p.a. in fees (paid to IFSC lawyers), Ireland looses c €20bn in Irish taxes. **

The Irish Section 110 SPV tax scandal has been covered by the BBC, the Financial Times and the New York Times.

BBC: Apple Tax Case: Ireland’s other taxing Issue - Section 110 Companies

FINANCIAL TIMES: Ireland confronts another tax scandal closer to home

NEW YORK TIMES: Wall Street Is Europe’s Landlord. And Tenants Are Fighting Back

First, our Primer on Irish Section 110 SPVs (“Special Purpose Vehicles”, or “S110s”) on this link:

Second, you want to jump to the answer, read Stephen Donnelly’s submission on fixing the Section 110 SPV scandal

In summary (you can find these facts in the posts that follow):

1. Largest tax avoidance in State history. Distressed debt vultures target base case returns of 15% p.a. over a 10 year hold period (this is not PE or HY investing). When Cerberus, Lone Star, Apollo, OakTree, CarVal etc., invest €1bn, they expect it to be worth +€4bn after 10 years. An Irish corporate (say BOI or Ulster Bank), pays 12.5% Corporate Tax plus another 20% Withholding Tax on profits. Those two rates combine for an effective 30% tax rate. A vulture investing €1bn in Ireland, expects it to become €4bn after 10 years, and should incur €1bn in Irish taxes (30% x €3bn profit). The vulture should incur Irish taxes (€1bn) equal to the size of its Irish equity investment (€1bn). A small group of vultures who invested +€20bn, will avoid all Irish taxes.

Distressed Debt Vulture Base Case Returns - 15% over 10 years

OakTree’s Mars Capital Ireland SPV Case Study: €80m Equity Investment vs. €80m Irish Taxes Avoided

OakTree’s Mars Capital Ireland Case SPV Study: Avoiding Irish Corporate Tax, Irish Withholding Tax and Irish VAT/Duties

Cerberus Project Eagle SPV: How the Irish taxpayer paid for Cerberus’ acquisition of Project Eagle

Cerberus Project Eagle SPV: 18 months on, Cerberus’ running yield on Eagle now over 30% per annum

2. Dublin IFSC law firms, who “own” S110, make c €50m in annual fees.* Section 110 was set up in the 1997 TCA after lobbying from Dublin IFSC law firms for a tax-free SPV (or legal “shell”), to compete in the Global Securitization market. The State was wary of this leaking into the domestic market, but was assured by its anti-avoidance tax rules. Rather than spending 10 years writing up detailed tax legislation, Revenue set up S110 SPVs as a separate class of Irish Resident Company (S110 SPVs must be “Irish Resident” to shield from the US IRS), with crude legislation. Dublin IFSC lawyers could do whatever they wanted with the S110 SPV. Revenue’s Irish anti-avoidance rules would protect the domestic corporate tax base (why no Irish corporate or plc - no matter how big / rich / powerful - tried S110 in domestic Irish economy). All updates and changes to Section 110, were from Dublin IFSC law firms (they drafted changes, the State stamped them). In the crisis, as the global securitization market collapsed, these IFSC law firms started winning vulture clients with “domestic versions” of S110s.

(*) Note. The entire Dublin IFSC SPV market generates about €100m in fees for lawyers and accountants, however about 50% of that are FCVs, which are a different class of SPV regulated by the Central Bank and not useful to Vulture Funds.

MATHESON: No. 1 Irish Tax Law Firm, and the leaders in Section 110 SPV development.

IRISH TIMES: Matheson defends use of Irish Charities to help Hedge Funds cut Irish Tax bills

IRISH TIMES: State scrutinising Matheson’s use of tax loopholes for Vulture Funds

How to find the vultures Section 110 SPVs - their Company Secretarial Firms

How the Vultures pulled it off - their Dublin Tax Lawyers, Accountancy Firms and Secretarial Firms

IRISH TIMES: Lawyers and accountants share in €100m fees from SPVs in IFSC

IRISH INDEPENDENT: Only lawyers and accountants gain from Irish ‘SPVs’ - Central Bank

3. It is avoidance, worldwide, and in Ireland. The SPVs the vultures are using (Section 110s “owned” by Irish Charities) are available, in different forms, all over the world. However, it is abuse (from a tax perspective), everywhere, to use these vehicles to take profits out of a domestic economy, without paying domestic taxes, and export gross to Cayman etc. Is it not tolerated in the US tax law, nor in Irish tax law. It if was, then every Irish corporate (i.e Kerry Group, Ryanair, Bank of Ireland), could securitize their business into a Section 110 (it’s easy), and stop paying all Irish corporate taxes tomorrow. They don’t, because they know it violates Irish anti-avoidance tax law. This is not a “loophole” (Section 110 is deliberately designed to be one big “loophole” to allow Global Securitization Deals be structured in whatever way they needed), or a consequence of our IFSC-economy. It is a violation of domestic Irish anti-avoidance tax rules that the State supports.

HUMOROUS EXAMPLE: Turning Strawberry Hill House, Vico Road, Dalkey, into a Section 110 (no tax, vat or stamp duty)

HUMOROUS REALITY: Irish Central Bank landlord a Vulture Fund paying no tax

4. Irish Revenue changed its own anti-avoidance rules for Vultures. Section 110 SPVs are so “alien” to the Irish domestic Irish tax code that they trip off several Irish anti-avoidance tax laws (walking into Revenue’s “mine field”). If an Irish citizen tried to use artificial internal high-interest loans to re-route their domestic Irish profits offshore, Revenue would prosecute as Tax Evasion. Vulture’s get around this via the “orphaning” trick where a third party Irish resident “owns” the equity of the S110 SPV while the Vulture masquerades as a 3rd party financier. Again, if an Irish citizen still tried the “orphaning” trick, Revenue would still prosecute as Tax Avoidance. Irish Revenue however do not challenge S110s (despite knowing the “orphaning” trick backwards). Instead, Irish Revenue issued rulings to “protect” the Vulture’s Section 110 SPVs from Revenue’s own anti-avoidance rules (i.e. Revenue created “pathways” in their own “mine field”). From these “pathways”, we now see improved Irish tax avoidance schemes (called “Super QIAIFs”). Unlike S110 SPVs, QIAIFs do not file public accounts, so you will never see them. Zero Irish tax with full secrecy.

Irish Revenue amending Irish Withholding Tax Anti-Avoidance Laws to fit Section 110 SPVs into Domestic Economy

Irish Revenue amending Irish CG50 Tax Anti-Avoidance Laws to fit Section 110 SPVs into Domestic Economy

Irish Revenue ignoring their own rules on capital gains taxes to fit Section 110 SPVs into Domestic Economy

How the Irish Revenue’s protection of Vulture Fund’s Section 110 SPVs, has now spawned Orphaned Super QIFs

Revenue’s S110 rule changes, mean Noonan is loosing control of Domestic Tax Base

5. NAMA (and IBRC) understand S110, and is selling to it today. NAMA (and IBRC) do detailed checks on all bidders (full legal structure of bidding company) to ensure that the distressed borrower is not involved. NAMA (and IBRC) have known for years, that almost all vulture bidders were using Section 110 SPVs (“owned” by an Irish Charity). NAMA is still conducting sales today where all bidders are Section 110 SPVs. Note from 1. above, if NAMA sold a loan to a vulture with a Section 110 for €1bn, we would be no worse then if NAMA sold to BOI (or AIB / UB) for €1. The Irish taxes BOI would pay, will equal the €1bn cheque the vulture hands to NAMA. When NAMA (and IBRC) say they take taxes into account when selling loans, they don’t.

Sunday Business Post: NAMA did know that Vultures used Section 110 Vehicles

Noonan lying to a Dail Question on whether NAMA knew Vultures used Section 110 SPVs

Frank Daly (Chairman of NAMA) at a Mason Hayes & Curran presentation in London on using Section 110 SPVs

RTE: Revenue aware that NAMA was selling to Section 110 Vehicles

SUNDAY BUSINESS POST: NAMA aware that it was selling to Section 110s

IRISH INDEPENDENT: State now appears to have delivered the “Sale of the Century” to Vultures

POSTSCRIPT - and the ultimate irony when it turned out NAMA itself was invested in Section 110 SPVs

SUNDAY BUSINESS POST: Nama set to be caught in new tax avoidance net

6. Section 110 SPVs are easy to take-down. While Section 110 SPVs are powerful Irish tax avoidance vehicles (no Irish corp tax, no Irish withholding tax, no Irish VAT or Duty), they are fragile. Their legislation is crude and simple (costs €40 to set up on CRO). The vulture S110 SPV accounts in this thread, are no more complex than SME accounts (with more zeros). The only wrinkle is to separate out the SPV’s real bank loans, from the artificial internal ones (called PPNs) used to “export” Irish domestic profits offshore. The Section 110 SPV has to be maintained for the full decade for the vulture to get the full tax avoidance benefit (i.e. the €20bn). Both US and Irish anti-avoidance tax laws prohibit using artificial high interest internal loans (the PPNs in the Section 110 SPVs), to “export” domestic profits to offshore tax havens. Vulture Funds get around this via the “orphaning” trick, where a particular type of third party Irish resident entity “owns” the S110 SPV equity, and the Vulture Fund masquerades as a 3rd party financier. Irish Charities (and certain other Irish trusts) are unique in being able to “square this circle” properly (can’t use an Irish Corporate or person). Stop “orphaning” and it collapses.

Can the Vulture Fund Section 110 Schemes survive without the help of Irish Charities

7. … but Government won’t touch them. ** The amounts of Irish taxes the vultures have at risk are huge. As per 1. above, a €1bn vulture investment in Ireland, should avoid over €1bn of Irish taxes over its ten year life. Therefore, even if the Government instructed NAMA to stop selling to Section 110s, it would be enough for the vultures to start litigating to protect their financial interests (they wouldn’t care about being barred from NAMA sales). The vultures would start waiving the Revenue letters sent to their Dublin tax advisers (per Apple), as well as their own minutes of meetings with the Dept of Finance. The public would not be happy at what they would see (neither would the EU, who could interpret as Illegal State Aid). In addition, the State plans using Section 110 SPVs to help US MNCs that have been forced “on-shore” in Ireland due to BEPS (i.e. Apple’s “Leprechaun Economics” moment), to continue paying c 0% Irish tax.**

Wilbur Ross Cardinal Capital: Another clear EU Illegal State Subsidy case in Ireland

How the Iish Media missed the real scandal of Cerberus €1.6bn Project Eagle Deal - Irish taxpayer paid for it

8. … hence Government’s strategy to “deal” with it. Fine Gael Minister Michael Noonan (and ex. leader of Fine Gael) has been on a mission since re-elected in 2011 to turn Ireland into the EU’s leading Tax Haven. Noonan has dramatically increased the range of vehicles that can used in Ireland to avoid all Irish (and therefore EU) taxes. Section 110 SPVs can be used for any type of Irish asset which can be securitized, which is almost everything (and as full Irish Companies, get the full benefit of the US EU Master Tax Treaty). QIAIFs (and ICAVs) are similar to SPVs but can used for any asset and don’t have to file public accounts (more secret). **These vehicles alone have made (1) all Vulture Funds tax free in Ireland, (2) all Commercial Property tax free in Ireland (see link above on Commercial Property), and (3) most US Multi-National’s also tax free (paying effective tax rates of well under 1%) (see link above on Apple). **To keep the EU off his back, Noonan will write new legislation to “clampdown” on these vehicles, however the legislation will include the new “loopholes” needed to keep the schemes going. The world however, is waking up to how extreme a Tax Haven Ireland has become under Fine Gael.

IRISH TIMES: Ireland branded 6th of world’s 15 worst tax havens

IRISH TIMES: The US new view of Ireland as a major Tax Haven

MOTLEY FOOL: Worlds Top 10 Tax Havens

That is how mad this whole thing is. Small number of foreign vultures operating in Ireland, using an even smaller group of specific Dublin IFSC tax law firms, with State and Revenue actively helping, avoiding €bns in Irish taxes.

The posts below address various “plant” articles that the Government, and certain Dublin professional firms, have put out. (many Dublin professionals I know are disgusted at what has gone on, but are too afraid to speak out on it).

They also add extra information on filed SPV accounts (and the Dublin IFSC tax law firms and accounting firms behind them) provided by grumpy, as well as brochures on how the vehicles work (and the new Super QIF & Orphaned Super QIFs).

Enjoy (but if you are an Irish tax-payer, you may get a bit queasy).


Finally, Noonan publicly admitted that Vultures are using Section 110 SPVs for a purpose that they were not intended for. Regardless of his proposed solutions, this is an important fact to note in the timeline of this scandal.

RTE: Government moves to amend Section 110 to close tax loophole used by vulture fund SPVs

Unfortunately, any doubt you will have regarding what side of the fence Noonan is protecting, will be dispelled when you read his proposed Section 110 “loophole closing” Amendment (i.e. it is a mostly cosmetic act, to deflect global media attention, from a growing understanding that Ireland has lost control of its own tax laws to Dublin IFSC lawyers, and is well on its way to becoming a full blown “Tax Haven”, but sitting, INSIDE the EU). €20bn in Irish taxes will now walk out the door to the Cayman Islands, and other “tax havens”, over then next decade from Noonan’s works.

Charity Regulator to investigate abuses of Charity Regulation

How the Vultures will pay no tax as a result of Noonan’s Amendment (hint: it was written by their Big 4 advisors).

How Noonan’s Amendment ensures the Irish Taxpayer funded Cerberus’ acquisition of Project Eagle.


The irony of the State loosing control of its domestic tax system to Dublin tax lawyers, is that other States are now starting to wonder if Ireland is not a “tax-haven”. Among the various definitions of a “tax-haven”, this is one of our favorites:

And now, we get this:

IRISH TIMES: Brazilian Airlines [using Irish Section 110 SPVs] furious as Brazil lists Ireland as tax haven

**Irish Section 110 SPVs, when combined with secretive Irish QIAIF vehicle (the “Super QIFs”), meet the more technical OECD’s “3 Criteria for a Tax Haven” definition - as pointed out by Stephen Donnelly TD in his excellent budget submission to Minister Noonan on fixing the Section 110 scandal (which Minister Noonan declined to do). Not even Luxembourg or Holland has a full tax, VAT and duty free vehicle (which can be made secret via QIAIF) inside their domestic economy, which also has the full shelter under the US and EU Master Tax Treaty (holy grail of Vulture Find and US tech and US pharma tax avoidance strategies). As the market realises the impact of Minister Michael Noonan’s actions, it will see that Ireland is the most aggressive Tax Haven INSIDE the EU. **

NOTE - when you get labelled a “Tax Haven”, you loose access to the full tax treaties that you have with those countries. You lose the reason why Apple, Microsoft, Google etc. are in Ireland. There is a reason why these MNCs are not in the Isle of Man etc. Without access to full UNRESTRICTED tax treaties (especially EU Master Tax Treaties), Ireland is useless to MNCs.

Stephen Donnelly TD Submits €20BN Proposal on Vulture Funds using Section 110 SPVs for Irish Tax Avoidance

Example of Revenue publically admitting they knew what the Vultures were doing, AND that they were prepared to break their own domestic anti-avoidance tax rules to help them.

IRISH TIMES: Revenue warns firms over sale of loans to Vulture Funds, March 2016

This is basically an Irish tax advisor (from a smaller Dublin firm, of course, Big 4 would never do,this) pointing out that that the Section 110 SPVs (owned by Irish Charities), which the vultures use to avoid all Irish domestic taxes (in contravention of all Irish domestic tax law), are so out of place in the domestic economy, that the Irish borrowers themselves should be incurring the 20% Irish withholding tax, before paying any interest into the vulture’s SPV.

Or put another way, Irish domestic tax law is robust enough to ensure that Irish profits cannot “leave the system” (as it does when they are paid into the fully tax-free Section 110, on their way to their final home in the Cayman Islands) without incurring Irish withholding tax. The last Irish entity inside the “system”, before it goes to an Irish withholding (and all other) tax free zone, is therefore the Irish borrower. Therefore they Irish borrower owes the Irish withholding tax.

What is interesting in this Irish Times article, is the direct quote from the Irish Revenue effectively stating that they understand the Section 110 domastic Irish tax avoidance scheme the vultures are using in Ireland, and that Revenue are considering amending the rules in the next budget to remove the liability for all borrowers to pay such withholding taxes, so as to preserve their tax avoidance schemes of the vulture.

Or put another way, the Irish Revenue are going to drive a major breech into core Irish tax law, to preserve the tax avoidance schemes of the vultures. i.e. Any Irish corporate paying Irish taxes (corporate or withholding) on their Irish profits can now stop. It takes an afternoon to re-structure yourself into a Section 110 (owned by Irish Charity), and all profits can be remitted gross to the Cayman Islands without any Irish taxes.

The reason why this is not an issue with Bank of Ireland (or other Irish lenders), is that they have to pay Irish taxes (Corporate & Withholding) on their Irish profits (per posts above). Ulster Bank for example will pay 20% Irish Withholding Tax when it remits dividends back to its UK parent, RBS plc. Similiary, Bank of Ireland will (eventually) pay +20% Irish Withholding Tax on all future dividends it makes to shareholders. Irish banks cannot escape or breech the Irish Withholding Tax net as they are in it. However, the vulture’s Section 110 is outside it. Section 110s are free of all Irish Withholding tax.

And lo and behold, one month after the Irish Times article, here is Revenue issuing a new ruling (section 3e) to make it okay to not pay Irish withholding tax to a Section 110 vehicle (April 2016). Revenue have not breached their own Irish withholding tax “fence”, to protect the vultures tax avoidance scheme. Others will follow through it.

Revenue April 2016 [8.3.6] Payment and receipt of interest without deduction of income tax…tax/…/08-03-06.pdf

(note, if the above link does not work, just type the heading into your browser and the PDF will appear).

The Revenue above change to the S110 withholding tax anti-avoidance rules has now also opened up a new source of tax-free lending to non-property money lenders like Cardinal Capital, who have their own S110s Irish tax (and VAT free) money lending machine set up.

How Cardinal Capital are using S110s to avoid all Irish taxes in their domestic lending business
Margrethe Vestager please take note of another Irish Illegal State Aid case


Michael Noonan’s Amendment to close the Vulture Funds using Section 110 effectively “blesses” the use of Section 110 in Ireland for all non-property related activities. It is quite easy to re-structure a situation into a “Section 110 Ready” state (by replacing it’s equity capital with debt capital). As Section 110 is exempt of not only Irish taxes but all Irish VAT/Duties, this opens up a wide range of options for Irish taxpayers to … avoid all Taxes.

Noonan loosing control of the Domestic Corporate Tax Base via Section 110

RTE prime time special tonight on vultures and their Section 110 tax avoidance schemes.

Again, great to see this being elevated and, most importantly for resolving this, FF seem to have copped it.

Couple of points on RTE’s piece:

  1. Prof Eamonn Walsh was a low point, and clearly does not understand this area (or worse, is trying to help Noonan).

He reminded me so much of this blast from the past …

Anyway, just to cover his sheer stupidity (his points in bold)…

  • These vehicles are common all over the world. They are, but not for what the vultures have done with Irish distressed loans. I would love to see Eamonn try to use a Section 110-type vehicle to suck US sourced domestic profits out of the US and route them to the Cayman Islands. He would end up in jail (as you would expect, as it is evasion of US domestic taxes). Not for any class of investor (pension fund or other). You would see all domestic corporate taxation systems collapse in almost every jurisdiction, if Eamonn was right.

  • The vulture investors are US pension funds who don’t pay tax. If a US pension fund (or any US investor) invests in an Irish company (like Bank of Ireland), they will incur 12.5% tax inside the Irish company AND 20% withholding taxes on the dividends that the Irish company pays to them. There is no way around this. If the California State Teachers Pension Fund (Calpers) but bought Kerry Group shares, Kerry incurs 12.5% corporate tax on Irish profits, plus Kerry deducts 20% Irish withholding tax on dividends. That is Irish tax law.

  • This is all to do with avoiding being double taxed. Double tax treaties mean the investors’ home Revenue will give a tax credit for the valid taxes they paid in other locations. When an Irish pension fund (or any Irish investor) invests in a US business, they pay US corporate taxation inside the business (35% rate) PLUS US withholding taxes (at the 15% or 30% rate) on all after-tax profits before bringing the cash back to Ireland. The Irish double tax treaty will prevent them from paying any more taxes in Ireland on top of this, however there is no “clawback” of these US taxes paid. You must pay them. Basic tax law.

  • The vultures will pay tax in their home country. Walsh’s “highbrow” backstop argument is that vultures will ultimately pay tax in their own home country and that this normal double taxation avoidance. Per above, it is not. The double tax law is that you pay all valid corporate taxes in the country you are investing in, and then get credit for them against your home country’s taxes. However, as Donnelly has shown with Mars Capital, vulture Section 110 profits go to offshore locations (and not back to the US). Irish Revenue fixed it so that vultures can not only avoid all Irish taxes (incl. VAT), but also US taxes (just like Apple).

  • Sure, they will find a way to avoid taxes regardless. Walsh’s “lowbrow” backstop argument is that the vultures will ultimately find a way around paying Irish taxes and duties anyway. They are rich and can afford the lawyers to do it. There are many large - and much richer than any vulture - companies in Ireland - Ryanair, Kerry Group, Bank of Ireland - earning billions p.a. in cash profits, who cannot find a way to get out of paying Irish Corporation tax of 12.5% and core Irish dividend withholding tax of +20% (and Michael O’Leary uses every legal loophole possible). The Irish tax code is not a piece of fiction.

**The naive part of Eamonn’s “apologia for vultures” is that Walsh does not make the basic connection that if a vulture can legally avoid all Irish taxes (and VAT) on Irish domestically generated profits, then every Irish corporation can do same. Bank of Ireland, or Tesco Ireland, could all convert to Section 110 status (just re-structure their equity into debt, and then sell this debt into a Section 110 company). That is the end of all tax/VAT for Irish corporates. **

I hope it is the last we hear or Walsh, putting on the “green jersey” - not for Ireland, but for his pal Noonan.

  1. There was nobody there from the Irish Government (and certainly no main Dublin tax partner was going to appear on to defend this). This is too toxic (giving people who are evicting Irish families zero-tax status). The paper trail of Revenue Guidance notes issued over the last 4 years, explicitly amending core Irish tax law, to fit the vultures Section 110 schemes, into the Irish domestic tax system, is there for all to see.

  2. Donnelly was good again. I love the way the interviewer had no interest on engaging with him on his point that this would run to tens of billions? Donnelly needed to clarify that he wants to shut down the Section 110 schemes that the vultures are doing in Ireland, and not all past valid international securitization Section 110s.

  3. Michael McGrath was also very good. FF clearly get this. FF have a deep network in the Dublin law and accounting firms and no doubt have been briefed privately on the inside story on what exactly has been going on here (there are many senior law and accounting people in Dublin who are FF and are disgusted by this abuse of Section 110 for domestic tax evasion by vultures). McGrath understands the difference between legit Section 110 firms (i.e. GE aircraft leasing), and not-legit firms (i.e. vultures with Irish sourced profits).

In a strange way, the lack of a full majority by any political block (“New Politics”) is probably what might get this large tax evasion scheme shut down. In the past, Noonan’s stonewalling would have worked, and the Prof Eamonn Walsh’s “green jersey comical ali” would have killed it. Perhaps our current system of no majority, is not so bad after all?

Another example of Revenue, helping vultures to by-pass Irish domestic anti-avoidance laws with CG50 Certs

An interesting note written by a partner in Maples and Calder re Revenue helping Section 110s (owned by Irish Charities), to get around Irish anti-avoidance laws for CG50. What makes it especially noteworthy is how Revenue leverage the ownership of the Section 110, by the Irish Charity, to help the Section 110 get around the anti-avoidance laws.

(Maples and Calder is the Dublin office of law firm who do lots of international structuring and have offices in offshore locations).

Go to the section titled Irish Loan Sales – Capital Gains Tax in the article:

In this section you will see another of Revenue’s domestic anti-avoidance laws - CG50 certs for sale of Irish land - becoming a problem for the vulture fund’s Section 110 vehicles. Buyers of Irish assets / loans off the vultures which relate to Irish land would have to hold back 15% and give it to the Revenue (it is like Revenue’s “schmuck insurance” to at least get some tax back from Irish land sales that they might not pick up in any audit / or other database.).

CG50 is also liability of the solicitor doing the sale (they should really withhold the cash).

This is obviously a problem for vultures. Can’t have them loosing 15% to normal Irish taxation.

Revenue therefore issued new guidance that “investment vehicles” would not need CG50 certs. However a vulture’s Section 110 is not an “investment vehicle” (not regulated). Therefore, you will see from the article, that Revenue also included “charities” as also being exempt from needing CG50 certs. That was the back door Revenue used.

Any Irish tax advisor will tell you that the reason why charities have never lobbied for this exemption from CG50 is that they don’t care (CG50 certs have been around for a while). Charities don’t pay Irish taxes (period), and therefore they can claim it back (plus, they are very sporadic sellers of assets so very infrequently encounter this).

Revenue added the “charities” to CG50 clearance institutions, because the vulture’s Section 110 vehicles are all “owned” by Irish Charities (and therefore can avoid the CG50 15% charge through this exemption).

This is how detailed - and devious - Revenue’s support for the vultures Section 110 vehicles has been for 4 years.

Many of the rulings that the Irish Revenue has issued over the past 4 years to protect the vultures Section 110 tax avoidance schemes from Irish anti-avoidance tax laws, leverage the fact that the Section 110 is “owned” by an Irish Charity. Revenue issue a ruling that only effects “Irish Charities”, which is a back door way to helping the vultures.

**Take away the ability for a Section 110, invested in Irish originated distressed loans, from being owned by an Irish Resident Charity, and you immediately unwind many of the rulings that Revenue have made to protect Section 110s from Irish anti-avoidance tax laws when trying to avoid Irish domestic taxes. **

John McManus of the Irish Times comes out with the answer - it is our fault?

Last week, we had Professor Eamonn Walsh doing his best “Comical Ali” impression to mislead the Irish public on RTE’s primetime covering vulture fund tax evasion, that nothing was wrong with how vultures use Section 110s in Ireland.

Sure it is all high-finance IFSC type stuff (you just can’t stop it), according to Prof. Eamonn (covered on this post).

Anyway, you know this is really starting to blow up when we have John McManus, Business Editor of the Irish Times, also called on to “wear the green jersey” by the Dept of Finance:

IRISH TIMES: Outrage over Vulture Fund tax avoidance rings a little hollow

John McManus goes for the “A Few Good Men” routine i.e. we are are country built on global tax evasion, so we can’t complain when it comes back on us; these poor Dublin Law firms are “on that wall”, doing what we asked them to do in 1997 (actually John, it was the Law firms who lobbied for S110), and now that it has come back on us, “we can’t handle the truth.”

Spin aside, let’s go through the facts of John’s article:

  1. Plant Article. First, you can always spot the “plant” articles by the inclusion of lines such as “…we get investment, jobs, downstream tax revenues such as income tax and VAT”. I don’t think the term “downstream tax” and such a high awareness of VAT as a contribution, would normally be associated with John’s writings. Article was drafted with someone else.

  2. Warning to FF. Of course, in a plea (or threat) to FF / Michael McGrath, is the line “high level of buy-in right across the political spectrum”. i.e. we will take FF down as well. Unfortunately (and surprisingly, in this case), FF did not direct Revenue to bend Revenue’s own anti-avoidance rules to help the vultures evade domestic Irish tax via Section 110s. Nor did FF direct NAMA (and IBRC) to sell tens of billions in distressed Irish loans to vultures with the zero-tax Section 110 schemes. As we saw on RTE primetime, FF have woken up to this scandal (with Noonan’s fingers all over it), and are starting to mobilise.

  3. Core Fallacy of John McManus Argument. John’s core argument is that this is IFSC type structuring, and while distasteful, is the quid-pro-quo for having an IFSC empire. This is false. Section 110 type structures are available all over the world (one of the few true lines in Professor Eamonn Walsh’s RTE piece). However, they are NEVER (ever) allowed to suck domestic profits, gross, out of any economy (without paying domestic corporate or withholding taxes) to re-route elsewhere. That is tax law everywhere. It is the law in Ireland too (until Revenue issued rulings to help vultures S110s get around anti-avoidance laws.

  4. Fallacy of the Icelandic Angle. John alludes to Irish Section 110s being used to house Icelandic bank loans in the GFC. What John (or more correctly, the writer of John’s plant article), forgets to mention, IS THAT THE ICELANDIC REVENUE WOULD BE TAKING ALL VALID ICELANDIC DOMESTIC TAXES DUE OFF THE PAYMENTS OWNED ON THOSE BONDS BEFORE THE CASH IS ROUTED TO IRELAND. Again, that is the law John. Perhaps you can’t handle the truth of it?

Just to re-iterate the simple truth that shows how stupid John McManus and Professor Eamonn Walsh (a.k.a. “Comical Ali’s”) arguments are. If you can use a Section 110-type vehicle (and these are available all over the world), to extract domestic profits - gross - out of a country, and re-route to the Cayman (per the Oaktree / Mars Capital / Matheson Charity Structure), then all domestic corporation taxation will cease all over the world. It takes c 5 days to “securitise” an Irish business (i.e. replace its equity with debt securities) so it can be backed into Section 110.

  1. Why John McManus side-steps the Irish Charity angle. There is a very subtle point regarding the use of Irish Charities in owning the Section 110s (the vulture never “owns” their own Section 110) that John (and his ghost writer) forgets to mention. Irish Charities give the vulture additional protection from Irish anti-avoidance tax laws (as per my earlier posts on CG50 certs), but more importantly, they shield the vulture from the US IRS. If they lost their ability to use Irish Charities to hold all their equity, then their scheme collapses. They either face Uncle Sam (whose tax rate starts at 35% and rises), or Ireland (where the worst case is a 30% tax take).

This is not IFSC-type business coming back to haunt us. It is domestic tax evasion aided and abetted by the Irish Government / Dept of Finance who directed the Irish Revenue to allow a small group of Dublin IFSC lawyers abuse an IFSC type structure (set up for a different purpose of administering global securitised loans), to enable the vultures to do it. IFSC-type structuring is available all over the world, but cannot suck domestic profits out of any economy with it. That is the law. In this case, the Irish Revenue is are the heart of breaking our own domestic tax laws and NAMA (and IBRC) has consciously, and with full visibility, sold tens of billions of Irish loans to it.

Contrast the John McManus with where the Independent finally got to a few weeks later:

IRISH INDEPENDENT: State now appears to have delivered the “Sale of the Century” to Vultures

**Jack Horgan / Sunday Business Post leads the media in understanding this issue. **

SUNDAY BUSINESS POST: What did Noonan know about vultures’ tax?

SBP are following the NAMA / IBRC paper trail (NAMA sold, and is currently selling today, loans to vulture bidders with Irish tax avoidance Section 110 schemes). The great thing about the NAMA / IBRC trail, is that it is truly rich in paper. All NAMA / IBRC bidders have to give full disclosure on the structure of their bidding vehicle. NAMA / IBRC has complete visibility into the Section 110 status and that the equity owner is an Irish Charity. This is to vet and police any conflicts or links with the source borrower, who is not allowed to be involved in any way with the vultures bid. And of course NAMA Chairman, Frank Daly, is the ex. head of Irish Revenue? And of course the IBRC Liquidator, Kieran Wallace, was a KPMG partner, the Irish tax gurus (key advisors to vultures on Section 110 to CarVal and Cerberus)

Pity SBP failed to do the sums here. They would see that when NAMA sells to a vulture with Section 110 status, the Irish taxes the vulture will avoid, will equate to the full equity cheque paid to NAMA (Irish media often struggle with sums - hence why they were so easily mis-lead in the run up to the Apple ruling (despite JPMorgan’s / Seamus Coffey estimates) by the Fine Gael press office with (“sources say the Apple fine will be less than €1bn”).

Also, from mid 2013, Bank of Ireland began to appear in all IBRC / NAMA loan bids. From late 2013 onwards, Bank of Ireland, AIB and even Ulster Bank and KBC Bank, have been bidders on almost all NAMA / IBRC loan bids. If NAMA / IBRC had checked the tax structuring in assessing bids, they could have sold to any of BOI, AIB, UB, KBC for €1 (one euro), and the State would still been better off financially. How can NAMA / IBRC claim they were ignorant to this angle (given Frank Daly is ex. Head of Revenue and Kieran Wallace is KMPG)?

Noonan caught lying in the Dail (again) to protect NAMA (who we all know, are selling to Section 110s)

Stephen Donnelly asked this question of Michael Noonan on July 21, 2016

Michael Noonan gave this formal answer:

This is the link to the official answer on the Dail questions site - look for Q 136

Every bidder who has dealt with NAMA knows this answer is a lie.
The sources from the SBP article (above), also agree that this is a lie.
Why is Noonan lying at such an early stage in this scandal?


Sunday Business Post nails NAMA with even more explicit evidence that NAMA knew it was selling to Section 110s:

SUNDAY BUSINESS POST: Revealed: Nama, the vultures and the Section 110 tax dodge

Another Irish Times “plant” article, this time from Cliff Taylor

First we had UCD Professor Eamonn Walsh doing his “Comical Ali” routine on RTE Primetime of “No Scandal Here”.

His points shown to be false here.

Then we had Irish Times John McManus doing his “You Can’t Handle the Truth” routine.
His points also exposed here.

Now we also get Irish Times Cliff Taylor, with a tried and tested routine in Irish journalism - “Waiting for Godot”

**IRISH TIMES: How to get vulture funds to pay tax, Cliff Taylor **(odd title, given conclusions Cliff comes to)

There was a scandal, there is a scandal, there will always be a scandal. I must go on. You must go on. We all go on.

“Waiting for Godot” is reserved for the end of Irish scandals, when Irish Justice (a.k.a. Godot), yet again, fails to arrive. Irish media run the “Waiting for Godot” routine to give the Irish public “new hope” that Godot’s (i.e. Justice) no-show was not because of any cronyism / corruption (it was). It was due to something else. Keep the faith. It will come in the future. It is an appeal to the most reliable instincts of the Irish public … apathy towards cronyism & corruption (all deja vu)

Bank Inquiry. Godot Defense = “sure, didn’t we all go mad with property”.
Moriarty Tribunal (+spin offs). Godot Defense = “sure, didn’t we elect them”.
Beef Tribunal. Godot Defense = “sure, wouldn’t you have done the same in his position”.

Before we get to the people who inspired Cliff’s article, some comments on the article itself:

1. Laced with Godot Defense. “… it is the classic Irish tax battle”. I cannot remember any “classic” Irish tax battles Cliff, involving Dublin law and accounting firms helping foreigners to avoid billions in Irish taxes from the Irish domestic economy? Again, we never see “classic” business vs. politicians battles, instead, we see business + politicians vs. public. Article is laced with “Godot” touch-points “… it was always going to be controversial…” (eh, not if they paid their Irish taxes Cliff)?

2. Irish Banks used Section 110. Despite Cliff (or John McManus) doing no research on the scandal (i.e. downloading the freely available accounts of vultures to check amounts, and Dublin law + accounting firms who built their S110s etc.), there is a reference to Irish banks using Section 110. Cliff forgets to add that Irish banks have NEVER (ever) tried Section 110 to avoid Irish taxes (corporate+withholding) on Irish mortgages. Ever. It is avoidance Cliff.

3. The Punchline. 2nd last paragraph reveals the intent of Cliff’s article. “Tax industry sources say that changing the laws to apply retrospectively would be difficult. The question is whether the vulture funds and their advisers stick to the letter of the law in establishing these companies and channeling funds in this way.” This is a lie. But this paragraph needs more explanation as to why some Dublin tax partners are now sweating bullets (and why they got Cliff involved).

Department of Finance terrified of being sued by Vultures

Irish Revenue (almost) never issues rulings / clarifications to individual clients. Revenue instead writes to the partners of the Dublin accounting firms. It is these partners who ask for the rulings / clarifications (and even draft the wording for Revenue). These partners then “interpret” Revenue’s letter and issue tax advice to their clients, who pay large amounts of money for it. As per my earlier posts, the amounts of tax avoidance here are huge. On a typical €100m investment, the vulture will expect to avoid - in the base-case - €100m in Irish taxes over life of the investment (and this will be exceeded in most cases).

This scandal has become so twisted, that the Dept of Finance is terrified to even tell NAMA to stop selling to Section 110s (as it is doing today), in case the vultures take it as a sign that Revenue is coming after them, and act first.

The DOF is terrified the vultures will start suing their Dublin tax advisers in Irish Courts (vultures are litigious). When vultures (and their advisers) start waiving Revenue “comfort letters” in Irish court, it will become clear to the Irish public (and EU Commission) what happened.

So, that is why nothing is going to happen (i.e. the Godot Defense needs to be played early).

Cronyism of John McManus and Cliff Taylor

We now have the two most senior business editors of the Irish Times, writing Section 110 articles, but never mentioning;

  1. That this scandal runs to tens of billions (hundreds of millions already avoided).
  2. That avoiding all domestic taxes is wrong - everywhere (incl. Ireland) - under anti-avoidance (regardless of structure).
  3. That no Irish corporate (from Bank of Ireland, to Ulster Bank to Ryanair) has ever attempted this with domestic revenues.
  4. That NAMA is selling loans (today), where all vulture bidders are Section 110s.
  5. That Irish Revenue have issued several rulings to help the vultures Section 110s by-pass domestic anti-avoidance rules.
  6. That these structures would collapse (US IRS would attack them) if the Charities were banned from helping them.

(note, despite offering no research, both articles “threw out” specific “facts” to try and discredit / soften the scandal).

Read Cliff’s article again with the above in mind (and re-read John McManus’ as well).
(and the threat of major litigation specific Dublin tax partners face - who most likely wrote Cliff’s article for him).

Beckett may not have been a businessman, but he understood Ireland and the Irish psyche.

Revenue’s anti-avoidance rule changes for Vultures, pave way for new classes of tax avoidance schemes

IRISH INDEPENDENT: Kennedy Wilson here to stay as vultures fly

Plant article in the Irish Independent re Kennedy Wilson to distance themselves from Vultures.

Key points being (1) we are not a vulture fund, and (2) we don’t use Section 110s.

Of course KW doesn’t use Section 110s in Ireland, as most of its Irish staff are ex. Bank of Ireland. They would know from their Bank of Ireland days, that using a Section 110 to suck profits out of Ireland gross, is not right. They would not try it as they would consider it potentially illegal (which it probably is). In hindsight, they were too cautious.

The article does refer to KWs use of QIFs, and that these are also tax free vehicles.

QIF is Irish tax deferment, not avoidance. Imagine Ireland is a big warehouse, and the Irish economy is like a big bath tub of water in the middle of it. A QIF is where you can put your tax-free bucket into the bath tub and scoop out water. You don’t pay Irish taxes on the stuff in your bucket. However at the maturity of the QIF (c. 5-7 years), you must walk with your bucket to the Revenue’s cash register at the door to the warehouse, to settle all valid Irish taxes. Ultimately, there is no real tax benefit to QIFs as any extra return you make during your QIF period, only results in extra taxes at the cash register on exit. It is tax deferment, not tax avoidance. It doesn’t mean it can’t be abused. We saw in earlier posts how Irish Revenue have issued rulings to help the vultures Section 110 overcome Revenue’s own anti-avoidance laws. Therefore, we could still see the Irish Revenue shut down their cash register on the day that KW walks their bucket out the front of the Irish warehouse.

**Section 110, in Ireland, is Irish tax avoidance. ** Section 110 is like having a hose pipe connected into the bath tub, and then running it out the door of the warehouse (right under the Revenue’s cash register) and into another warehouse across the road (i.e. the Cayman Islands warehouse). Where as the QIF guys have to “sweat it” to see what they can lobby FG to let them off on when they walk their bucket to the Revenue cash register, the Section 110 guys can run their water out the door in real time with no taxes. Because these guys are so heavily overseen by the US IRS (who know their form), they get an Irish Charity to “own” the hose-pipe and put their name on it (“nothing to do with us”). The Section 110 is therefore a very different animal from a QIF, and why using it inside the Irish warehouse (it was never mean to be used “inside” the Irish warehouse - only outside) to suck water out of the Irish bath tub, is tax avoidance on an unprecedented scale.

NOTE - This analogy would have any reader asking why Revenue doesn’t lean over their cash register and notice a whole load of hose-pipes running along the floor out the Irish warehouse door. This is the real scandal of this whole vulture tax avoidance mess. Irish Revenue can stop this today. Instead, we have evidence (see earlier posts) of Irish Revenue issuing constant rulings to protect these hose pipes from Revenue’s own anti-avoidance laws.

**There is one BIG (BIG) PROBLEM with Section 110s. As with all Irish Companies, all Section 110s have to publically publish their accounts on the CRO website, which any citizen can download for €1.50. QIFs do not - they file no public accounts.

This is why the “next generation” of Irish tax avoidance will focus on QIFs … and here are two of the most popular**

Next Generation Tax Avoidance for Irish High Net Worths: Section 110 Super QIF

Here is a guide from Davys on using QIFs and Section 110s (and the difference).

Remember, as a public document, Davy can’t “spell out” the tax implications in neon lights. You will just have to read between the lines of what Davys say to understand what is going on here.

However, you will see that at the end of the document, Davy’s have created a new hybrid - the Super QIF. This is a QIF but with a Section 110 vehicle between the asset and the QIF (i.e. In the above analogy, like getting the hose pipe stuck into your bucket.

As I pointed out in earlier posts, the new rulings that Revenue have being putting in place to protect the vulture’s Section 110 domestic Irish tax avoidance schemes, are now going to be exploited by others. When you break down the integrity of Irish corporate taxation at such a fundamental level, you open the floodgates.

DAVY STOCKBROKERS: Ireland as a location for Distressed Debt Funds

Next Generation Tax Avoidance for REITs : Section 110 “Orphaned” Super QIF.

The Davy note ends with a tweak called the Orphaned Super QIF, which is the above structure but with an Irish Charity as the owner of the Section 110 equity.

The Orphaned Super QIF is not for Irish HNWs (they have their Super QIF vehicle), instead, it is for foreign REITs (like KW), who missed out on what the vultures achieved, and want in on it.

It would take about 5 days of structuring to turn Kennedy Wilson’s legitimate non-tax evasion QIF structure (where they settle their Irish taxes at maturity), into a Davy’s Orphaned Super QIF. KW would need a little help from Revenue to avoid tripping a specific QIF anti-avoidance measure on doing this, but as we have seen in earlier posts, Irish Revenue have bent over backwards when it comes to helping foreign funds in Ireland evade Irish taxes.

This is what KW could do, when they finally liquidate their Irish assets.

Example of Revenue (again) issuing a ruling to help the Vulture’s Section 110 avoid Irish CGT

As mentioned earlier, the Section 110 vehicle is a crude legal instrument. Because the Irish Revenue expected no Irish taxes from it (in its role as a genuine global securitization vehicle), they had no interest in writing reams of new tax leglislation for it. They let the main Dublin IFSC firms draft the Section 110 rule changes, it and Revenue stamped them.

Revenue’s own Irish anti-avoidance rules, would prevent these S110s operating in the domestic Irish economy.
(until, the Dublin IFSC law firms got the Fine Gael Government to change their minds, and all hell broke loose).

As we saw earlier, when a Section 110 gets involved in a land transaction, CG50 certs (and a 15% prepayment of land capital gains taxes) are required. We saw what a problem this is for Section 110s (they have no way to offset the CG50 taxes, and re-coup them), and how Revenue amended their own Irish anti-avoidance rules for CG50’s, to fix it for them.

Another example of Revenue, helping vultures to by-pass Irish domestic anti-avoidance laws with CG50 Certs

However, CG50 aside on land deals, what happens in the following scenario:

(i) Vulture’s S110 owns a €5m par loan that it bought for €1m off IBRC.

(ii) Vulture’s S110 forecloses on the loan, and seizes the underlying property backing the loan.

(iii) Vulture’s S110 sells this property for €3m in the open market, making a €2m capital gain on the loan.

Even the “crude” S110 rules, don’t allow them to hold Irish real estate (the Irish rich, use QIFs to “defer”(*) their Irish taxes on Irish real estate). And the concept of “capital gains” is much less common in securitization (which is all about income gains). Therefore, in Irish Revenue terms, the SALE of the above property (step (iii)), was a taxable capital gain that is not exempt from all Irish taxes. Fear not Vulture, the Revenue came to the rescue (again).

(*) note: as we discuss later on, new hybrid combinations of QIFs + S110s, called Super QIFs (Orphan Super QIFs), allow Irish high net worths (and Irish REITs), to convert their tax deferal vehicle (ordinary QIF), into a permanent tax avoidance vehicle.

In 2012/13, Revenue issued “private rulings” to the Dublin advisors of Vultures, effectively telling them that where they foreclose, the gain on the asset can be made INSIDE the Section 110 (therefore free of Irish taxe), but that they are to do this reasonably quickly (i.e. don’t hold the property inside the Section 110 for a long period; you are not to take the p**s).

These Revenue letters to the Dublin advisors contain the following wording:

Irish Section 110 SPV Companies - 101 Guide for Dummies

1. What is an Irish Section 110 Company (a.k.a Irish SPV, or “special purpose vehicle”) used for?

Section 110 SPVs were set up under the 1997 Tax Consolidation Act (“TCA”) to help a handful of Dublin IFSC law firms (mainly MOP, now called Matheson, and A&L Goodbody), compete to administer global securitization deals (“GSD”). GSDs can be used for raising bank and bond financing for any type of assets, but the “classic” use is the financing of aircraft purchases.

Example of a Classic Aircraft GSD:

  • Delta Airlines wants to buy $10bn of planes from Boeing, but doesn’t have $10bn in spare cash.
  • Delta could buy the planes by borrowing $10bn from RBS plc (secured only on the planes i.e. non-recourse debt).
  • There are two reasons why Delta might not (or cannot) do this:
    (a) Delta may already have too much debt on it’s balance sheet, and is not allowed to borrow more; and, or
    (b) RBS is wary that Delta’s other debt, could hamper them seizing the planes, in an event of a default.
  • The solution to both is a GSD, with Boeing’s planes + RBS’s finance, housed in a Special Purpose Vehicle (“SPV”).
  • The Irish Resident Section 110 Company is the SPV.

2. How is the Irish Section 110 SPV Structured?

Banks lead in structuring the S110 SPVs for clients like Delta (and earn big fees for it). The big global wholesale banks like Deutsche Bank, Barlcays, RBS, Citibank, JPM etc. dominate GSD. They have the all-important balance sheet power to “warehouse” the deal, until they can sell it down to 3rd party bond holder investors (takes c 6 months). Sometimes they act in groups.

  • RBS (or a bank group), pay Boeing the $10bn with their own money, and put the planes into the Irish S110 SPV.
  • Delta enters into a long-term lease agreement with the S110 SPV to “rent” these planes for c $1bn per annum.
  • RBS then “sells-down” their $10bn investment to 3rd party long-term bond investors (earn big fees doing so).
  • The S110 SPV now has $10bn of planes as an asset, and $10bn of bonds as a liability (i.e. its net asset value is zero(*))
  • The interest on the bonds is set to equal to the $1bn “rent” Delta pays, so there is no spare cash left in S110 (**).
  • RBS effectively “exits” the deal, and leaves Delta and it’s bond investors alone together.
  • A Dublin law firm (Matheson or A&L Goodbody), act a lawyers to the S110 SPV, and draft the rent and bond documents.
  • However, once all the legal documents are done and bond investors brought on, there is little more work to be done (***).
  • Secretarial firms like TMF and SFM, provide the S110 SPV Directors, while a Big 4 does the accounts (****)

(*) note: aircraft leasing deals in Ireland do not create much GDP “value”, as their NAV is close to zero. Noonan disguised Apple’s “Leprechaun Economics” moment (when Apple moved it’s “stateless” IP tax avoidance scheme onshore to Ireland, thus increasing GDP by 26%), by saying that its was a “mix of factors” including aircraft leasing. he did this to divert attention from the extra €380m per annum in EU GDP levies that the Irish Exchequer must pay for housing Apple’s IP on the Irish National Balance Sheet. those who are familiar with aircraft GSDs knew how mis-leading this was, and that something must be up for Noonan to lie.

(**) note: as we will see later, SPVs occupy a “grey area” of acceptance by international tax authorities. a key part of this acceptance is not deliberately looking like a “tax haven” type investment (even through Irish S110s are). therefore the Irish S110s, technically, pay 25% tax on all net profits. however, the S110s leglislation is loose enough that ANY FORM of bond structuring is allowed. the banks always put in a few Profit Participating Notes (or PPNs), whose “variable interest” is effectively designed to mop up any unforeseen extra cash or profits that might arise, so no Irish taxes are paid. discussed more here:

Why Vultures pay no Irish Taxes, even though the Section 110 1997 TCA Irish Tax Rate is 25%

(***) note: despite Noonan’s ridiculous assertion that S110 SPVs provide over 38,000 jobs in Ireland (discussed later), once the Asset Rental Agreement is done, and the Bond Investor documents are done, there is little other work needed in the S110. their accounts are very simple (quarterly rent in vs. quarterly interest out), and are done in a day. the ongoing Dublin professional services support for S110 SPVs, post their set-up, is tiny (which was a big driver as to why the Dublin law firms started abusing the S110 system for vulture funds in the GFC, when the flow of new Irish Section 110 from GSDs dried up).

(****) To copperfasten the “Irish Residency” of the S110 SPV, it is important that its Directors are all living in Ireland. Specialist corporate secretarial firms like SFM Ireland and TMF Global provide this service for under €25k per annum. S110 SPVs are very simple accounts (rent money in, bond payment out), so the Big 4 accounts / audit also cost no more than €25k per annum. It would be extreme for an S110 SPV to have running costs in excess of €100k per annum.

3. Why do Irish Section 110 SPV Companies pay no Irish taxes?

The S110 SPV pays effectively no Irish taxes (there is a “headline” 25% rate for the cosmetic purposes for the US IRS), no Irish VAT and no Irish duties of any type (often described in the brochures as “tax neutral”). This makes Ireland a very competitive place to structure GSDs. The logic from the Government side was that these GSDs would never have come to Ireland without these benefits, so there was no “net loss” to the Irish Exchequer from this. The benefit was the total legal fees that would drop into the Irish economy from administering these S110 SPVs (see below, is about €55m per annum in legal, plus Secretarial + Big 4 fees of under that).

4. Are the users of Irish Section 110 SPV Companies therefore avoiding legitimate taxes elsewhere?

In theory, no. Take the example above:
(a) Delta gets tax relief from the US IRS on its S110 SPV “rental” payments. The US IRS logic is that Delta would have gotten US tax relief on debt interest anyway, had Delta just borrowed the money direct itself (vs. using a S110 SPV).
(b) Bond investors will be paid the “rental” income as interest, but they will pay taxes in the country in which they are domiciled, so again, the US IRS (and any other tax authority), should be no worse off from this structure either.

In reality, increasingly yes. Bond investors are finding ways to “house” their bonds offshore permanently (Cayman Islands, BVI etc.), and thus while the US IRS is giving Delta a tax credit, no tax authority is recovering this credit through taxing the bond interest (Double Tax Treaties assume that as long as one of the parties is getting the taxes, it should “net-out” long-term).

We saw the vultures using Section 110s in the domestic Irish economy, had their PPN bonds (how they funded their S110), domiciled in Cayman Islands etc. Thus the Irish domestic profits went offshore, without any Irish (or other) taxation.

Moving domestically generated profits - untaxed - to offshore locations, is a “no-no” in every OECD country.

5. Is this global crack-down on SPVs bad for Ireland’s Section 110 industry?

The dynamic in 4. has actually helped Ireland’s S110 industry. As brochures like Matheson’s (below) point out, Ireland is not an “offshore tax haven”, but an “onshore” legitimate EU country sitting inside the EU (with full access to the EU tax treaties and transfer pricing systems). This is why Ireland has become such a big GSD hub in recent years (vs. Cayman etc.)

MATHESON: Ireland as the SPV jurisdiction of choice for Structured Finance Transactions

Most changes to S110 legislation since 1997, was from two main law firms (Matheson, A&L Goodbody), looking to put “meat on the bones” of the S110 rules (*), so that the US IRS will not consider them as “sham” tax avoidance vehicles. In particular, underpinning the S110 is “Irish Resident”. The US IRS has powers to ignore such “sham” structures for calculating US taxes.

(*) note: the GSD sector is very complex and diverse. when the Dublin IFSC law firms successfully lobbied for S110s in 1997, the Irish Revenue, given that S110s pay no Irish taxes, refused to spend 10 years writing detailed GSD tax legislation. instead, Revenue wrote crude rules to allow whatever “structuring” that was needed to avoid the 25% tax to happen. this caused problems with tax authorities like the US IRS who suspected them as “sham” vehicles. The US IRS was also able to challenge the fact that while S110s were “Irish Resident” (so they could be shielded under Irish tax law from US IRS), “protections” in the 1997 TCA against using S110s in the domestic Irish economy, they meant they were not truly “Irish Resident”. the Dublin IFSC law firms successfully lobbied to have these “protections” dropped.

In fact, every time you hear Michael Noonan refer to Irish S110s throughout the vulture fund scandal, he mentions the 25% Irish tax rate that applies to S110s (even though it is 0% in practice), and that they are fully Irish Resident Companies (even though real domestic Irish corporates can’t use them in Ireland). He is doing this knowing the US IRS is watching him.

6. How big a contributor are Irish Section 110 Companies to the Irish Economy?

The Department of Finance / Noonan quote 38,000 jobs in the Irish securitization industry. 4 major Dublin IFSC law firms are responsible +80% of Irish S110 deals. Within these law firms, c 25% of their business is S110s (max). This equates to one full major Dublin IFSC law firm (i.e. 4 x 25%), equating to the total economic contribution to Ireland from S110s (max).

With 265 solicitors (not just partners, but every qualified lawyer per law society records), and c. 55 partners in the biggest (i.e. Mathesons), that is a gross fee revenue base of c €55m per annum (the leading main Dublin professional services firms - law and accounting - average about €1m in gross fees per annum). Makes the legal S110s industry worth c €1bn to Ireland.

The corporate secretarial and accounting fees from S110s probably add another €50m per annum in fees (€50k annual fees on c 1,000 real SPVs). Adding this to the legal fees gives c €100m per annum in total S110 fees, or c €2bn in economic worth to Ireland (*)

(*) using the total gross fee income of €100m per annum, is the most generous way to calculate the economic worth. obviously a chunk of these fees will not fall into the Irish economy (state or private), as it may be spent on foreign assets / expenditure (i.e. Villas in Portugal for Tax Partners etc.). however, it is useful to scale the maximum contribution.

NOTE - Stephen Donnelly TD has used Central Bank figures to do a “bottom up” version of this calculation. He also zones in on the Section 110 SPVs that vultures use, and excludes the FCVs that the Central Bank regulates. This gives a fee base of c €50m per annum.

Stephen Donnelly TD Submits €20BN Proposal on Vulture Funds using Section 110 SPVs for Irish Tax Avoidance

When you compare this fee base, with the c €20,000m in lost Irish taxes from the Section 110 SPV Vulture Fund scandal, you can see why the DOF / Noonan, need to use the 38,000 jobs figure. The Irish taxes that Dublin Irish law firms have helped their vulture fund clients avoid, will cancel out their contribution to Irish society, for the next two centuries.

It is important to note, that stamping out the abuses of Section 110s by vulture funds in the domestic Irish economy, does not mean passing up on the €50-100m per annum in fees. On the contrary, it prevents Ireland attracting the international label of a “tax-haven”, which would kill the Section 110 SPV industry in Ireland (the US IRS would label the S110s a “sham”).

7. When did Irish Section 110 Company’s start appearing in the domestic Irish economy?

From 1997 to c 2011, no Section 110s appeared in the Irish domestic economy. While Dublin IFSC law firms had amended S110 legislation continuously, to make S110s look more “Irish Resident”, Revenue had anti-avoidance laws. No Irish corporate (even Irish banks, who did mad things in this era), used a S110 in the domestic Irish economy to avoid domestic Irish taxes.

However, as mentioned above, pretty much all of the legal fees that the likes of Matheson or A&L Goodbody earn from S110s comes from the S110 set up (lease agreement, bondholder documents etc.). In the GFC, the global securitization market died. Billions was lost by SPV bondholders (remember Depfa Bank in the IFSC). There were few new S110s in the GFC.

This was the time when vulture funds started using S110s in the domestic Irish economy. They were all being advised by the same Dublin IFSC law firms that lobbied to set up the S110s in 1997, and wrote all of the subsequent S110s leglislation.

8. What about the Irish Revenue’s Anti-Avoidance Laws?

Irish Revenue has anti-avoidance laws to stop S110s operating in the domestic Irish economy (why S110s never appeared pre 2011). This is the mis-conception of the vulture fund S110 scandal. This was not a “loophole”. This was the Irish Government, directing Irish Revenue, to ignore their own tax avoidance rules to help the vultures S110s fit into the domestic economy.

If you or I tried to tell Revenue that the profits of our Irish business are zero because of interest payments the business made on artificial internal loans which we happened to own, and which we had domiciled in Cayman, Revenue would class as “tax evasion”. Vultures use the “orphaning” trick where a third party “owns” the equity and the Vulture masquerades as a 3rd party lender to their own vehicle. If you or I tried the “orphaning” trick (get our cousin to “own” the equity), Revenue would also prosecute as tax avoidance (and would win). For some reason however Revenue turn a “blind eye” to the Vulture’s use of the “orphaning” scam.

It is now so crazy that we have numerous examples of Revenue having to issue subsequent rulings to continuously stop the vulture’s S110s running foul of Revenue’s domestic anti-avoidance rules (some documented on this thread).


The confluence of Section 110 + Apple Tax has shown the world that Ireland has the key trait of a “tax haven”, which is for an amount of money, a domestic Irish law firm can structure you to achieve zero Irish domestic taxes.

The result is that, unlike the hope in 5. (above), even 2nd world countries label us a “tax haven”

IRISH TIMES: Airlines furious as Brazil lists Ireland as tax haven for Section 110

*NOT ONLY DO WE LOOSE THE €20BN IN IRISH TAX, WE MIGHT ALSO NOW LOOSE THE €100M IN FEES TOO * (Airlines furious as Brazil lists Ireland as tax haven – The Irish Times)

**Mars Capital Ireland Case Study: How the Irish Exchequer Will Fund OakTree’s Investment in Ireland

(i.e. OakTree’s €80m Irish Investment = Irish Taxes Avoided by OakTree of €80m)**

DAIL SPEECH: Stephen Donnelly Dail Eireann July 8th 2016 on Mars Capital Ireland (one of OakTrees S110 vehicles)

Seamus Coffey (Economic Incentives) tweeted calling Donnelly out for mis-leading people re the accounts of Mars Capital. Now that Mars Capital’s accounts are on SCRIBD (thanks grumpy), let’s check who was right:

Mars Capital Ireland Limited (Annual Return 30th June 2015)
Mars Capital Ireland Accounts
Mars Capital Ireland B1

As we will see below, issue is Coffey does not understand distressed debt economics (and Donnelly was conservative).


Mars Capital has a liquidity statement in the back of their accounts (note 14c). This statement is there because Citibank, who lent money to Mars Capital, would require it as part of their loan facility. It shows Mars Capital will generate about €400m, net of their Citibank loan and interest repayments. This projection was made one year after OakTree’s €80m acquisition, so the €400m is a base-case (i.e. it will grow as Mars get to work on portfolio).

It is not hard to generate this €400m figure from first principals.

Mars Capital’s mortgage book generates c €14m in interest income (per 2015 filed accounts). The portfolio was originated in 2005-2007 (yikes), and it is all effectively +100% interest only variable rate 30-35 year mortgages. By 2015, they would have a weighted term of c. 20 years left (maybe slightly shorter, but this portfolio was in such deep negative equity that borrowers had (and will have) little incentive to repay principal early). US vultures were surprised at the high levels of interest payments on Irish books (vs. their deep negative equity rates), however they were not familiar with the fact that Irish mortgages are “personally guaranteed” (and Irish bankruptcy is torture), vs. US mortgages where “jingle mail” / “strategic defaults” are more common (the interest repayment rate can mirror the negative equity rate).

The vulture gets a nice dynamic in Ireland where they are almost guaranteed their stream of interest payments for a long time (particularly when the portfolio has been “seasoned” for a few years), unless the value of the collateral (i.e. the house) rises above the mortgage, in which case Mars Capital’s recovery rate will rise dramatically (i.e. the vulture wins either way).

So, 20 years @ €14m = €280m in interest income alone.

Oaktree paid €155m for the €360m in mortgage principal (or 42 cents in euro), so getting paid back principal at same rate, brings it to €435m (€155m + €280m). However, Oaktree, at bidding, would have assumed that its recovery rate would be 25% better than bid (a standard, 52 cents in euro recovery), which is another €40m, and brings it up to €475m.

This is close to what the accounts of Mars Capital almost show in their 14(c) liquidity statement.
(they might have had slightly different assumptions, but you can see, the math is simple enough).


Coffey got confused with the 2049 term of the Mars Loan Notes, but let me explain the 101 of distressed debt investing:

(a) Buy at a running yield that equals base case hurdle rate.

Mars Capital is getting €11m of net income (€14m from mortgagees less €3m in Citibank interest) on their €80m of equity (€155m price, less €75m Citibank loan). That is a starting yield of c 14% (€11m divided by €80m). This is just below Oaktree’s hurdle rate for their distressed debt funds of 15% p.a. over 10-11 years, on a portfolio that is almost a decade old (i.e. well seasoned)

OAKTREE HURDLE RATE: Distressed Debt Q1 2016 Investor Presentation
(see page 5 for their 18.9% historical distressed debt return over +20 years of investing)
(see page 18 for their target 10-11 year distressed debt hold term)

(b) with (a) locked-in, extend, extend extend.

Once you have the cushion of knowing that your running yield is at your hurdle rate, you then extend the terms of the most distressed mortgages. This is when the distressed debt magic happens (why the 2049 term).

It is amazing what happens to a distressed situation when another 10 years is given (either to the borrower’s financial condition, or to the underlying collateral / house value). US distressed debt funds, in the worst cases, can turn a 50% portfolio recovery rate, into a +85% portfolio recovery rate with term extensions. This is why the Mars Capital Ireland Loan Notes (the financial instrument that Oaktree to suck their Irish profits out to another jurisdiction) have been given terms to 2049. It does not mean Oaktree are going to hold these notes to 2049, but they are willing to extend mortgage terms to 2049 (another 15 years beyond the 20 year weighted term). Oaktree can then sell / list these Loan Notes as part of their exit before year 10. So if Oaktree extend their forecasted recovery rate (which they will get a specialist rating agency in to validate if they are listing etc.) from 52 cents in euro (bidding assumption) to 85 cents in euro, then that is another €120m in recovery, and the €475m figure above, goes to €595m. Of course, their extra term means more years of 15% running yield an so on.

**This is why, we will see Mars Capital Ireland’s liquidity statement rise from €400m (net of Citibank debt+interest), to well over +€500m in the next 3-5 years (as they get into the portfolio and get a better handle on it). After that, who knows. **


  • Oaktree invested €80m of equity in Mars Capital (it has re-packaged it as a Loan Note for tax purposes), on which it will expect, as a base case, to turn it into €323m in total after 10 years. (€80m @ 15% IRR).

  • This would be similar as the €400m above (from their 14c liquidity statement), net of the Citibank loan & interest, but with a c 5% deduction for debt servicing fees / management (standard assumption) and timing.

  • OakTree will be expect to get another +€100m on this (with term extensions and holding the running yield level), to bring its IRR to 20%, in line with its historic average (almost all the vultures are going to earn +20% per annum in IRR in Ireland).

  • At a 30% effective tax rate (12.5% corporate tax + 20% withholding tax), Mars Capital Ireland will avoid more than €80m of Irish taxes over the term of its investment.

I think people / media struggle to understand the quantum of Irish taxes that the vultures are going to avoid in Ireland over the next decade. Hopefully the above example for a small deal, and pointing out Coffey’s mistakes in this area, will help.

A typical vulture who invests €1bn of equity in an Irish distressed debt portfolio from NAMA / IBRC, is typically going to avoid well over €1bn in total Irish taxes, over the 10 year term of its investment, via their Irish Section 110 vehicle.

It’s unpleasant, but that is the math of it.

Mars Capital Ireland Case Study: Structure to Avoid Irish Corporate Tax, Irish Withholding Tax and Irish VAT

If you want help understanding Mars Capital Ireland’s legal structure (with the Irish Charity owning all its equity), then check out this presentation from Mars Capital Ireland’s accountants, Grant Thornton.

Irish SPV Taxation, Grant Thornton—spv-taxation.pdf

Shows the structure and technique to avoid Irish Withholding Tax, which at 20%, is more onerous than Irish Corporate Tax (and ironically has stronger Irish anti-avoidance rules). Note, Section 110s are also exempt from all Irish VAT and all other Irish Stamp Duties (like the Cherry-on-Top for the vultures).

Withholding tax is a core tax in all developed economies, and must be paid. If a European vulture fund invests in the US, not only will it pay 35% on all US profits, but it will pay another 15-30% (depending on status) in US withholding tax as it repatriates its profits back home. Withholding tax is a core protection for any society when capital leaves its shores. Even a European tax-exempt pension fund, will pay 15% US withholding tax on all capital profits that makes in the US and takes home. Same laws in Ireland. Same laws everywhere.

Page 8 includes detail on ‘Conditions of Deductability’ (a.k.a how to use Loan Notes to transfer Irish profits in the S110 vehicle to Caymam), that it cannot be used for a ‘specified person’ (another Irish Revenue domestic Irish anti-avoidance law), however having an Irish Charity “own” the Section 110 equity (vs. Irish Resident Person), gets around this anti-avoidance issue.

Remember, to protect against US IRS (and avoid other Irish anti-avoidance laws), Oaktree cannot “own” the equity of its own Section 110 company, Mars Capital Ireland. Oaktree must have a “separate” 3rd party, who must be Irish resident, owning Mars Capital Ireland. However as I have covered in posts above, Citibank (bankers to Mars Capital) are not going to tolerate anything other then an Irish Charity owning it (as is cannot go bankrupt). Convenient that the Revenue’s own Irish anti-avoidance rules, only cover people and not Irish Charities? Which Grant Thornton are happy to help you navigate through.

The “Irish Charity” structure has become so common, that when Revenue have changed Irish anti-avoidance rules to help the vulture’s Section 110 schemes work, they often do it via the “charity angle” to try and minimize the damage they do to other Irish domestic tax laws. We saw this on an earlier posts with how Revenue resolved the anti-avoidance CG50 rules for the vulture Section 110 schemes by making them exempt for Irish Charities.

Again, prohibit Irish Charities from owning equity in Section 110s that are focused on domestic Irish profits (not the valid IFSC securitization Section 110s), and it is very likely the whole Section 110 domestic Irish tax avoidance scheme collapses.

Distressed Debt Vulture Base Case Returns - 15% over 10 years

Distressed Debt Funds target base case returns of 15% p.a. over a 10-11 year hold period (one of the biggest mis-understandings of vultures is that they are not short-term investors like Private Equity funds). Per the Mars Capital Case Study post above, term extension is the game, and that takes time. Distressed Debt Funds invest for periods of a decade).

This was Howard Marks CEO of Oaktree (a.k.a. Mars Capital Ireland), the world’s biggest distressed debt investment firm, talking to Bloomberg in December 2012 (a bleak time, when Oaktree’s hurdles rates had dropped from 20% per annum). Remember that Distressed Debt Funds have to earn a minimum return of 8 - 10% per annum (depending on firm) for investors, before the investment partners make any real bonuses (or “carry”, in the lingo).

Bloomberg Dec 2012: Oaktree’s 15% Returns Target Is Lowest Ever, Howard Marks Says

You can download Oaktree’s Quarterly Investor Presentation here, which covers their history of distressed debt returns (page 5) at 18.9% per annum (through all cycles for +20’years), and their hold period (page 18) of 10-11 years.

OAKTREE HURDLE RATE: Distressed Debt Q1 2016 Investor Presentation
(see page 5 for their 18.9% historical distressed debt return over +20 years of investing)
(see page 18 for their target 10-11 year distressed debt hold term)

Per the Mars Capital Ireland Case Study earlier (one of OakTree’s Section 110s in Ireland), €100m invested at 15% p.a. for 11 years (the base case), will turn into just over €460m, and should incur over €100m in Irish taxes. i.e. equal to the €100m investment. Ireland is funding the Vultures entire investment in Ireland, through lost Irish taxes.

Here is Cerberus Capital Management fund raising for their new Distressed Debt Fund - Cerberus Institutional Partners VI.

You will note that they reference that the $2.6bn Cerberus Institutional Partners V (a fund involved in Ireland), which was launched in April 2013, is currently on an IRR of 29.3% per annum (3 years later). Note that 29.3% per annum, over three years (April 2013 to April 2016), means that this fund has more than doubled in value in 3 years.

If this Cerberus fund was fully invested in Ireland (it is not), then it would incur Irish taxes of about €880m to date (12.5% corporation plus 20% withholding on their +$2.6bn gross profit). Of course, all Cerbreus funds operating in the Irish domestic economy are using Section 110 structures (all equity owned by an Irish Charity) and will therefore not be paying any Irish taxes (expect the €250 per annum the Sunday Business Post revealed).

Here is vulture Apollo Global Management with their 2015 accounts for their Irish Section 110 vehicle (“Tanager Limited”).

Apollo used Section 110 vehicle, Tanager Limited, to pay €290m for portfolio of Irish distressed mortgages from Bank of Scotland Ireland (BOSI), and get all profits tax-free.

Here is Tanager Limited’s 2015 Annual Return from the CRO website.

On the bottom of page 18 and page 21 of Tanager’s 2015 Annual Return, you will see that Apollo use an assumption of 15% when valuing the distressed Irish mortgages that Tanager bought (being Level 3 Assets, their valuation basis must be disclosed).

These mortgages have a weighted term of almost 13 years, so you can see that just after buying the mortgages from Bank of Scotland Ireland, that Apollo believes that it will earn a return of 15% per annum over the 13 years. This will mean that Apollo’s S110 will also avoid Irish taxes that will EXCEED the amount that Apollo invested in Tanager.

(of course, Apollo will do a lot better, but it is another example of how important the 15% benchmark is in distressed debt).

**Focus on Matheson (a.k.a Matheson Ormsby Prentice or MOPs), one of the key architects of “domestic” Section 110 **

Matheson (used to be called MOP) is the second biggest Corporate Law Firm in Ireland (after Arthur Cox), but the fastest growing (with A&L Goodbody).

IRISH TIMES Cantillon: Only three law firms left in the ‘big four’ - Arthur Cox, Matheson and A&L Goodbody?

Matheson built their Law Firm principally on advising IFSC firms to manage their taxes. The Wall Street Journal even came to Ireland to find out why so many US multi-nationals have addresses in 70 Sir John Rogerson’s Quay (Matheson Head Quarters).

WALL STREET JOURNAL: Dublin Moves to Block Controversial Tax Gambit
Why do many units of major U.S. business share the same address of 70 Sir John Rogerson’s Quay, Dublin

Mathesons (and A&L Goodbody) dominance of the US MNCs EU-US tax avoidance business, which they run out of Ireland, makes them very powerful with the Irish State (untouchable you might say)

(Matheson’s Apple Ireland ASI tax avoidance scheme is covered in this link:)
Apple, Ireland, EU, Tax Avoidance, Margrethe Vestager, CCCTB

Matheson were one of the key firms that lobbied the Irish State to create Section 110 in 1997, to enable them to administer global securitisation loans (nothing to do with Ireland).

Matheson have also been one of the key drivers of all subsequent changes in Section 110 legislation since the 1997 Tax Consolidated Acts (a fact they boast about on their web-site).

Matheson lobby for “loopholes” which their clients can walk through. It is why they dominate Section 110 for Vultures.

Putting it all together: Vehicles + Vultures + Lawyers + Accountants + Charities

It was Matheson that Stephen Donnelly discovered, have created their own in-house Irish Charities, which are a key component in the Vultures Section 110 schemes.

Matheson controls three Irish Charities - Medb, Badb and Eurydice - which “own” the equity of the Section 110 schemes of most of their Vulture Fund clients - OakTree, CarVal, Cerberus.
(profiled in more depth here:

IRISH TIMES: State scrutinising Matheson use of tax loopholes for Vultures

IRISH EXAMINER: Wealthy firms using Matheson Charitable Trusts to avoid Irish Taxes

Turlough Galvin (Head of Tax Group, Matheson), even finds time to lecture to Philantrophy Ireland and hang out with one of his sponsors, Minister Leo Varadker, Fine Gael,T.D.

Mathesons used of advanced tax planning is not just confined to their MNC / Vulture Fund clients.

Irish Times: Senior Matheson figure set up Cyprus firm to reduce tax bill
Stanley Watson set up a structure with Mossack Fonseca to charge for work paying dividends to firm in Cyprus

And of course, when your US MNC clients have avoided billions in Irish Taxes (€13bn for Apple alone according to the EU), and your Vulture Fund clients are going to avoid another +€20bn in Irish Taxes, you get awards from the prestigious International Tax Review - best Irish Tax Law Firm 2016:

A comforting photo for you to keep, next time you visit your over-crowded crumbling hospital, or any other badly underfunded pieces of Irish infrastructure and public services.

Why the Irish Tax Avoidance of Section 110 is 30%, not 12.5%

A Section 110 is a remarkably easy thing to set up. You pay the CRO €40 and set up a normal Irish company with normal Irish company directors, and write a line in the accounts saying that your company “… is a special purpose company with limited liability and qualifies for the regime contained in Section 110 of the Irish Taxes Consolidation Act, 1997”. Hey presto, you are a Section 110. (you should also notify Revenue as well, but you don’t need their approval).

These are the tax breaks you get from Michael Noonan inside your Section 110.

**1. No Irish VAT or Irish Stamp Duty. **

An often under appreciated aspect of Section 110s. Instead of buying land and paying 13.5% VAT plus 1-2% stamp duty, just structure that your Section 110 buys a loan, secured on the land (easy to set this up that you lock in all rights as if you bought land itself), and not VAT or stamp duty. You can foreclose later on (again, no VAT or stamp duty) and remove the loan.

The Section 110 doesn’t even incur the 23% VAT on it’s Irish Director fees (the vultures can’t be Directors of their S110 as it would contaminate it’s residency), or Dublin Advisor fees (lawyer and accountant). The Irish taxpayer is in effect paying for one-quarter of the Dublin advice, that was used to create a structure to avoid all Irish taxes?

2. No Irish CGT.

If the asset inside the Section 110 doubles in value, don’t worry, there is no Capital Gains Tax. Note that Irish Corporates pay CGT rates higher than 12.5% on certain gains on real estate particularly. Even with relief, it can exceed 20%.

This was actually a tricky are for Section 110s as the notion of “capital gains” does not really occur in securitization (it is all about matching asset incomes with loan interest). We saw earlier, the Revenue issuing “private rulings” to fix this issue for vultures.

Example of Revenue (again) issuing a ruling to help the Vulture’s Section 110 avoid Irish CGT

3. (Effectively) no Corporation Tax.

Section 110 legislation mentions a 25% Corporation Tax rate. But this is a “cosmetic” figure to fool the likes of the US IRS (and Irish voter, given how often Noonan quotes the 25% rate in Dail questions on S110s) into thinking Section 110s are not really a cheap “sham” structure to avoid all taxes (which they of course are). Discussed more here:

Why the Vultures pay no Irish tax when the Section 110 tax rate is 25% (1997 TCA)?

In fact, a reading of Irish tax case law by the Dublin IFSC advisors (who created these vehicles for the vultures), recommends that every Vulture pay €250 in annual tax to ensure that their tax file is closed for each year. Also discussed more here:

Why do Vultures often declare exactly €250 in annual tax?

The way that Vultures avoid all Irish Corporation Tax (25% or 12.5%), is as follows:

a. Convert almost all the equity of the Section 110 (bar €1, which is sold to an Irish Charity), into Profit Participating Notes (PPNs). A normal Irish company would be funded by bank debt plus shareholder equity(*). In a Section 110, the shareholder equity (bar the €1 owned by an Irish Charity), is replaced by this PPN (effectively an “internal loan”).

b. Set the terms of the interest on the PPN at 10% plus “variable interest”. Fix the definition of “variable interest” so that it mops up all extra income that can arise, or any capital gains.

c. Register the PPNs in the Cayman Islands (or Luxembourg / other tax-free location), so that the PPN interest can be re-located here free of any Irish taxes.

(*) note: in a normal Irish company, the profits, less genuine bank debt interest, are taxed at 12.5%. When this company wants to distribute these net profits to shareholders, it either does one of three main things:
(i) distributes them as salary, which is +45% marginal taxation
(ii) distributes them as a dividend, which is 20% withholding tax, plus more in hands of recipient of dividend, to bring up to (i)
(iii) liquidates the company, and distributes all profits net of 30% CGT (why there are so many liquidations in Ireland).

4. No Irish Withholding Tax (20%).

As you will notice from the note (*) above, Irish Withholding Tax must be paid on most distributions from an Irish company. However, Section 110s are exempt from all Irish Withholding Taxes.

Note, there are reliefs form Irish Withholding Taxes (you can lower it to 5%) but only where the vulture CLARIFIES that they “own and control” the Irish Section 110. If the vulture did that, they would run foul of the US IRS who would then tax them in the US (at 35% Federal + c 5% State). Note also that this relief is only available where the ownership is in a jurisdiction that has a “full” tax treaty with the EU (i.e. not the Cayman or Isle of Man etc.)

Here is a good example of the Japanese Revenue suing Apple for non-payment of Japanese Withholding Tax, on payments that Apple Japan was making from its Japanese profits, to it’s dodgy Irish “stateless” IP box on Sir John Rogerson’s Quay.

Japanese Revenue show how “amateur” Apple’s Irish IP scam is.


So, if Bank of Ireland makes a profit of 100m on lending:

Take 100m
Less (12.5m) Irish Corporate Tax
Equal 87.5m Net Profit
Less (17.5m) Irish Withholding Tax
Equal 70m Net Net Profit

€100m BOI profit = €30m Irish Tax + €70m For BOI Shareholders

Contrast with Vulture, doing THE SAME activity as Bank of Ireland:

Take 100m
Equal 100m sent to Cayman Islands

€100m Vulture profit = €0m Irish Tax + €100m For Vulture Fund

POSTSCRIPT - Why Noonan’s Section 110 Amendment is designed to Fail.

As discussed in the above link Noonan’s Amendment allows Vultures to not only keep the tax breaks they abused since 2011, but enables them to lock-in (and/or shelter) all future tax breaks, at the above 0% rates.

As discussed here, Noonan’s Amendment confirms that Section 110s can now be used to undermine all Irish Corporate Taxes (i.e. only dummies will pay Irish Corporate Tax going forward)

Who are the vultures and what are their known investment vehicles in Ireland

There are only about 10 vulture funds that have bought +90% of the Distressed Debt loans sold by NAMA / IBRC that were done using Section 110 vehicles (all equity owned by an Irish Charity). Note that this excludes Bank of Ireland, Allied Irish Banks and Ulster Bank who have been regular bidders since late 2013, however these 3 entities are structured to pay normal Irish corporation tax of 12.5% on profits, plus another 20% Irish withholding tax on distribution (to shareholders, or parents). i.e. they don’t use Section 110 (equity owned by Irish Charities) because they know what it is.

Here is my core list (and some of their known vehicles, that you can see on, with their Dublin advisors).

  1. Oaktree Capital Management (famous owner of Mars Capital Ireland, spent over 1bn).
    Irish Lawyer is MATHESON
    Irish Accountant is GRANT THORNTON
    Irish Directors is TMF

  2. Cerberus Capital Management (used Promontoria Eagle and derivations of Promontoria, spent well over 3bn).
    Irish Lawyer is A&L GOODBODY
    Irish Accountant is KPMG / PWC
    Irish Directors is SFM

  3. CarVal (Launceston Property Finance, Vanguard Property Finance, not sure on their spend).
    Irish Lawyer is MATHESON / A&L GOODBODY
    Irish Accountant is KPMG
    Irish Directors is SFM

  4. Goldman (Beltany Property Finance, spent well over 750m).
    Irish Lawyer is MATHESON
    Irish Accountant is PWC
    Irish Directors is SFM
    (their own in-house distressed debt fund)

  5. Deutsche Bank (not aware of their vehicles, spent + 1bn).
    Irish Lawyer is WILLIAM FRY
    Irish Accountant is DELOITTE
    (as per Goldman Sachs, their own in-house distressed debt fund)

  6. Lone Star Funds (Lone Star International Finance Limited and other vehicles, spent +3bn).
    Irish Accountant is E&Y (GRANT THORNTON)

  7. Apollo Global Management (also not aware of their vehicles, spent < 1bn).
    Irish Lawyer is A&L GOODBODY
    Irish Accountant is DELOITTE
    Irish Directors is SANNE CAPITAL MARKETS

  8. Honorable mentions for smaller operations must go to:

Reconcile the above with the list from the WSJ from 2013 of the world’s ten largest private debt by funds raised


(a) The Blackstone Group has appeared in Ireland (i.e. bought the Burlington Hotel) but is was more their Real Estate Group, and not their distressed debt group (i.e. GSO Capital Partners). Can’t recall GSO bidding on anything material?

(b) Fortress, Ares and Avenue came to Ireland but I can’t recall them buying anything.

(c) M&G Investments have been active in Ireland but by way of providing financing to Johnny Ronan (best of luck) etc.

Coverage of the Section 110 scandal in Irish Media

By far, the best material written on the vultures use of Section 110s to avoid all Irish taxes, are from Stephen Donnelly (in the Dail and in the Independent), and the Sunday Business Post.

Stephen Donnelly

Stephen Donnelly: Why Noonan’s Section 110 Amendment won’t work, Sunday Independent Sept 2016

Stephen Donnelly: Tax avoidance anomaly means pain for taxpayers, Sunday Independent July 2016

Stephen Donnelly: How did the Government shaft mortgage holders and taxpayers in one fell swoop, Sunday Independent July 2016

Stephen Donnelly: Dail Eireann July 14th 2016

Stephen Donnelly: Dail Eireann July 8th 2016

Sunday Business Post

Jack Horgan Jones: What did Noonan know about vultures’ tax? Sunday Business Post

David McWilliams: Vulture funds rub salt into the carcass of this country, Sunday Business Post

Probe into vulture fund tax avoidance following Sunday Business Post investigation, Sunday Business Post

Various Experts

It is impossible to get major Dublin law and/or accounting partners to come out and speak about what this small group of vultures have done (for obvious reasons). Instead, they have been using John McManus and Cliff Taylor in the Irish Times to try and “deflect” the scandal (covered above). We even had Professor Eamonn Walsh of UCD do a “Comical Ali” impersonation (shown above) on this scandal for RTE prime time (covered earlier).

We are therefore left with smaller accountants to highlight this scandal (it is also obvious to them):

Sunday Independent: A rallying cry to claw back some of the vultures’ massive gains in Ireland, Paul Wyse, Smith & Williamson

Irish Times: Revenue warns firms over sale of loans to vulture funds (quoting Aisling Donohue, MG Partners)

(the above Irish Times article is perhaps the greatest “smoking gun” of this scandal (covered in detail earlier) as it shows the Irish Revenue’s full awareness of what the vultures were doing, and that it was going to solve it for them. For anybody with a basic understand of taxation in Ireland, this Irish Times article, and Revenue’s quotes, was shocking.)

Other Irish Papers

It is hard for the Irish media. They can’t get a major expert to go “on-record” and they are fed the lines of the Dept. of Finance (i.e. we are very concerned, broad Revenue investigation, checking QIFs, ICAVs, more of a “loophole issue” that needs to be closed etc.), who are paddling like mad to deflect the attention from the c 10 vulture funds who are going to do +90% of the billions in Irish taxes avoided and violate several Irish anti-avoidance rules.

Vulture Funds are feasting tax-free on carcass of our property crash, Independent

Vulture Funds minimise tax bills as State now appears to have given “Sale of the Century”’ Independent

Vulture funds using charitable status for tax avoidance being investigated,

Revenue takes aim at opaque financial special purpose vehicles, Irish Times

Revenue investigating firms’ misuse of charity tax scheme, Irish Examiner

Dearbhail McDonald: Revenue probes 40 ‘tax-neutral’ companies for suspected abuse, Irish Independent

International Papers

It was funny to see the surprise when they realised what was going on.

BBC: Irish Government to close Vulture Fund “loophole”

BBC: Apple Tax Case, Ireland’s other taxing issue

EU Anti-Competition Angle - the Government’s (and Vulture’s) Sum of All Fears

As with Apple, the ultimate resolver of this scandal might end up being the EU.

  1. The EU Commission is already taking a case against Ireland regarding the fact that US MNCs like Apple and Google, despite running up to 50% of their business through Ireland, pay total Irish tax rates of near 1%. Because the Irish Revenue won’t enforce its own Irish anti-avoidance laws against US MNCs (and charge the full treaty rate of 12.5%), the EU Commission is charging that situation is really an illegal state subsidy to US MNCs in Ireland by the Irish State.

  2. In addition, the US IRS is currently investigating some of them for their “quasi-stateless” situation (despite being technically “resident in Ireland”), and are looking to use US anti-avoidance law to show that payment of such tiny Irish taxes proves that they are not “effectively” Irish resident (i.e. the US IRS can read Irish tax law and see that what US MNCs are doing runs foul of Irish anti-avoidance law, and because the fine upstanding Irish Revenue does not prosecute, it must be because these MNCs are not “really” resident in Ireland).

These two factors is why you have seen Irish GDP (and corporate tax take), skyrocket lately, as the US MNCs are “forced” to more fully commit to Ireland, and pay proper Irish taxes, to shield themselves from the EU and US IRS.

The EU has incredibly strong powers under Anti-Competition law, and a ruling against the US MNCs will see billions (literally) in Irish back taxes refunded to Ireland (hard to believe we need the EU to force this), however it will come with major fines to Ireland (also in the level of billions). It is not clear how these two amounts will balance out.

I believe that Sinn Fein have asked the EU Commission to investigate the zero-tax status of the ten vultures in Ireland under the same Anti-Competition laws (i.e. unfair subsidy vs. say Bank of Ireland).

What is interesting here, is that if the EU make a ruling that they will take the case (they already have a full legal team in Ireland on the US MNCs case, especially Apple), then it will take years. Unlike a US MNC, which carries on in perpetuity, the vultures will have to inform their investors (the Limited Partners, or L.P.s) in the relevant funds that invested in Ireland, of this contingent liability, and that they should reserve up to 30% of their cash returned, in case the EU demand repayment of unpaid Irish taxes in the future.

This will be a problem for the L.P.s, and particularly when they get their own lawyers to investigate and realilse that their gains were made avoiding all Irish taxes. These L.P.s are major US teachers and fireman pension funds. Such a situation is not going to look good for the vultures, and will leave them in a very tricky position.

Irish Times: Ireland awaits Apple ruling as Brussels tightens tax screw

Sinn Fein: Carthy questions ECB on tax avoidance by vulture funds

Of course if Margrethe Vestager wants to knock off some “low-hanging fruit”’ then taking a look at the tax-free Section 110 quasi-banks, like Cardinal Capital, is a good start:

Cardinal Capital Group - clear case of illegal state aid to a domestic Irish lender

Thanks for these posts, lots of reading over the next week. I suppose it should all come with a blood pressure warning, but to be honest there isn’t much that can surprise me in this great little country of ours.