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

**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.

Imagine if there was a forced IREXIT and Ireland was forced to negotiate tax treaties with all the Countries where they have eroded the tax base for the last twenty five years both within the EU and beyond.

If you want to complain to the EU Commission then the e-mail address for direct taxation complaints is

The Politics of the Vultures Section 110 Scandal - FF as the game changer

Everything in Ireland is politics.

In other countries, when rules are broken, the law is applied and things get sorted.

Not in Ireland.

Lets run through the politics so far:

1. FG’s Mistake. To make NAMA and IBRC Wind-Up a success, Noonan, granted the requests of a core group of Dublin professional partners, who lobbied in 2012 to get their vulture clients tax-free status in the domestic economy. They proposed the existing Section 110 route, as they had used for IFSC securitization clients. They feared that it would run foul of the Revenue’s domestic anti-avoidance laws. The Dept of Finance consulted with Revenue, and Revenue announced that it was “comfortable” that a corporate could suck profits, gross, out of the Irish domestic economy, and export to the Cayman Islands (or other). Revenue’s “comfort” would be tested over the next 4 years, as it found itself caught in a web of its own domestic anti-avoidance rules, requiring ruling after ruling to protect these vultures (and damage its own tax code).

2. Sinn Fein Gets Nowhere. The great thing about having the US IRS as your home tax authority, is that you have to operate your tax avoidance schemes in a very open and transparent way, or the US IRS will label them “sham structures” and prosecute. The Section 110s, as Irish Resident Trading Companies, file full accounts, which anybody could download for €5 euro. Sinn Fein were one of the first to start downloading these accounts and finding almost no Irish taxes being paid. Pearse Doherty started asking questions in the Dail and Matt Carthy in the EU. Of course, Sinn Fein is like the “antichrist” to FG, FF, Labour (and many others), and their questions were given no merit in the media, and Noonan dismissed them in the Dail. That is where it would probably have died.

14th March 2016: Tax regimes for vulture funds need to be examined – Pearse Doherty TD

16th June 2016: Carthy questions ECB on tax avoidance by vulture funds - Matt Carthy MEP

Stephen Donnelly, Social Democrats. Donnelly began to raise the same issues in the Dail in June via the plight of one of his constituents (Dominic and Sarah), who were about to be evicted by Mars Capital Ireland (one of Oaktree’s Section 110s in Ireland). Donnelly is smart (MIT / Harvard smart). He downloaded Mars Capital Ireland’s accounts and started connecting the dots. Donnelly was able to see the scale of the avoidance was into the €bns, that it needed Irish Charities, that NAMA was active in it, and finally, that the Irish Government must be driving it (or otherwise Revenue would have shut it down). Donnelly was the first person to publically cut through the rhetoric of “spokesmen” like Professor Eamonn Walsh, and point out that sucking domestic profits - gross - out of the Irish Economy, and exporting to Cayman, is avoidance.

Stephen Donnelly: How did the Government shaft mortgage holders and taxpayers in one fell swoop?
The State may well have missed out on huge tax profits through its sale of distressed home loans

Stephen Donnelly: Tax avoidance anomaly means pain for taxpayers

You know when the Sunday Independent puts a picture of Michael Noonan at the top of every Stephen Donnelly article, that the “dogs on the street” have connected the dots of what is going on here.

Michael McGrath, Fianna Fail. Despite the elegance of Donnelly’s script and his ability to reveal the fuller nature of the scandal, it still would have been dead-in-the-water, until we had the RTE prime time review. RTE opened up with a set-piece from Professor Brendan Walsh of UCD trying to defend the vultures (discussed on other posts in this thread). It was really miserable stuff. However, once Walsh had departed, Donnelly was joined by Michael McGrath. It was clear that McGrath understood the issue in detail (actually sounded clearer than Donnelly). McGrath is an accountant himself. And while nobody from the big Dublin account firms are going to opine on this scandal, accountants all over Ireland, who deal with domestic Irish tax (and Revenue) on a daily basis, know that what the vultures have is wrong. FF would also have a big network in the Dublin professional firms who could brief FF fully “behind closed doors” on this scandal.

RTE Primetime Extra: Section 110.

This was the eureka moment.

Here we have FF putting its political weight behind an issue. A major Irish scandal, that for once in Irish political history, FF was not involved in. Smelling blood in the water, and the chance to even the score with FG (years of listening to “you bankrupt the country” speeches; correctness aside), McGrath made it clear on RTE that this was a problem. After McGrath’s RTE prime time appearance, we had a furry of Irish Times articles from John McManus and Cliff Talyor (also profiled in earlier posts), obviously “guided” by some Dublin professional firms exposed to this scandal (if the vultures loose their €20bn of Irish tax avoidance, they are going to want to sue somebody very badly for this).

And that is the politics of it … so far.

Why do the Vultures Section 110 (all equity owned by Irish Charity) often declare exactly €250 in Irish tax?

When the Sunday Business Post did some investigative work (unlike many others), on the vultures Section 110 (all equity owned by an Irish Charity), tax avoidance schemes, they discovered something odd.

Almost all of them declared exactly €250 in annual tax?

REVEALED: the vulture funds that paid just €250 in tax, Jack Horgan Jones, Sunday Business Post


Launceston Property Finance (“effectively” owned by CarVal) … €250 tax
Stapleford Finance (“effectively” owned by CarVal) … €250 tax
Beltany Property Finance (“effectively” owned by Goldman Sachs) … €250 tax
Mars Capital Ireland (“effectively” owned by OakTree) … €250 tax
Promontoria Eagle (“effectively” owned by Cerberus) … €1,947 tax (somebody will get their ass kicked for overpaying tax).

A few others picked up this €250 quirk as well:
BROADSHEET.IE: Mars Capital, Matheson And The €250 Tax Bill

The reason why they usually pay €250 is because of a quirk in Irish tax case law, where an annual settlement of €0 tax, can be legally confused with not making any tax settlement. i.e. the courts could rule that you have not made your return (despite filing €0), and that your tax year is still open (or, worse still, late).

Your €50 an hour local Irish solicitor, is going to tell you not to bother, and just file €0.

Your €1,000 an hour major Dublin law tax partner, will tell you that €250 is established in Irish tax case law, as an Irish filed and completed tax payment, and given that you are hoping to avoid €1bn in Irish taxes in your Section 110 (all its equity owned by an Irish Charity), you should pay it (I don’t know what happened in the Cerberus case, but I would assume it is duties - you can be sure that their Dublin law and accounting partners sweated forensically over their return to ensure that, the €1bn of tax avoidance aside, anything else that had to be paid, no matter how small, was paid).

On behalf of the Irish nation, thank you Mr / Ms Dublin tax law partner for that.

This should be you … but it is really … us

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

Every time Michael Noonan refers to Section 110s in the Dail (chamber or questions), he will almost always use language like this (provided by the Dept. of Finance, who get it from a Dublin law firm), which refers to a 25% tax rate:

From: Dail Eireann Written answers, Thursday, 23 June 2016

In fact, many journalists also end up re-quoting this when referring to Section 110s tax avoidance.

The reason why you see a 25% tax rate quoted is because Irish anti-avoidance tax law is so robust (having been written over centuries and heavily copied from UK tax law), that where a structure is not subject to normal Irish taxes (i.e. corporation rate of 12.5%), it will be subject to a “default” rate. This “backstop” default Irish tax rate is currently 25%.

Irish Section 110s are fully Irish Resident Trading companies (as we saw earlier, this is critical to fully shield them from the US IRS, the home country of most vultures). However, Section 110s are exempt from all Irish taxes (corporation tax, withholding tax and even stamp duties). Therefore, as a default, they are subject to this 25% tax rate.

Fear not Vulture, don’t cough your cornflakes up just yet. Your €1bn in avoided Irish taxes is still safe (for now). Section 110 leglislation is so vague and broad (per my earlier post on structuring, instead of spending a decade drafting legislation for Section 110s, Revenue wrote very simple conditions, designed to by-pass this 25% rate in all cases) that only a fool would end up structuring a Section 110 that declared any taxable profits (outside the recommended €250 per earlier).

The many brochures that Dublin law and accounting firms offer will confirm this:

GRANT THORNTON (OakTree’s Accountant): SPV Taxation in Ireland—spv-taxation.pdf

DILLON EUSTACE (LoneStar’s Lawyer): Ireland as a Domicile for SPVs

MATHESON (Oaktree, CarVal, Cerberus Lawyer): SPV Jurisdiction of Choice for Structured Finance Transactions

So, why doesn’t Revenue just “waive” the 25% Irish default tax rate for Section 110s?

The reason is that vultures (almost all US based), are more terrified of the US IRS. The US tax code allows US companies to maintain foreign subsidiaries free of US taxation (the “check the box rule”) as long as they are genuine. It must clearly show that it is a real “company” (not a pension fund, or other). The test of “genuine” is really critical here.

The Irish Section 110 legislation is already very basic and crude (Irish Revenue could not be bothered spending the ten yeas writing it up properly). It is critical that when a vulture gets audited by the US IRS, that the vulture can show the US IRS that it’s Irish Section 110 “company” is a “real” commercial entity, living properly “inside” the Irish tax system (for which the US and Ireland have a Double Tax Treaty under EU Law, and for which the vulture can file under to shield from US taxes). It must not look like a Dublin IFSC tax lawyer tool, for tax avoidance, which can be set up for €40.

This is why Noonan (and Dept. of Finance) have a “mantra” of mentioning 25% tax rate, every time they utter the words Section 110 (Taxes Consolidation Act 1997).

Noonan is terrified that the US IRS (and EU Commission) will realise that while Section 110s are “tax-neutral” to global securitization firms (which is fine), Section 110s are “tax-free” for other US firms operating in the Irish domestic economy (not fine). This would be in violation of US-Ireland Tax Treaty (for which the EU negotiated and also remains the Treaty’s overseer and policing authority), as well as other agreements within the EU regarding national taxation.

Can the Vultures Section 110 schemes survive without the help of Irish Charities?

All the “equity” of the Vulture Fund Section 110 tax avoidance schemes are all “owned” by Irish Charities

IRISH TIMES: Vulture funds using charities to avoid paying tax, says Donnelly

IRISH EXAMINER: Vulture funds ‘use charity to avoid tax’

JOURNAL.IE: Vulture funds using charitable status for tax avoidance being investigated

SUNDAY BUSINESS POST: Stephen Kinsella: Charity status for vulture funds – someone shout stop!

NEWSTALK: Tánaiste promises probe into vulture funds posing as charities

Why do the Vultures need Irish Charities to “own” their Section 110 Irish tax avoidance companies?

1. A Vulture cannot “own” its Section 110 company. If the vulture owned the actual shares (or equity) of its Section 110 company, then the US IRS (most vultures are US based), could challenge the Section 110 as being a US Group Subsidiary of the Vultures US Company, and apply US taxation to Section 110 profits (starts at 35% Federal plus c 5% State).

2. In fact no non-Irish resident can “own” the Section 110 company. If any non-Irish resident (Irish passport not enough, must be fully Irish tax resident), owned the Section 110 company, then the US IRS could challenge the Section 110 as not being resident under the Irish US Tax Treaty and sue for US taxes. Also why Directors of the Section 110s are also all Irish resident people (and not the Vulture partners, who control it).

**3. No Irish resident “person” (or “company”) can “own” the Section 110 company. ** If an Irish resident person (or “company”) “owned” the equity of the Section 110 then we have two different types of problems:

**3.1 Irish anti-avoidance laws. ** Even though Irish Revenue protect the vultures Section 110 schemes from their anti-avoidance laws (i.e. here, having an Irish resident “person” (or “company”) own the equity of this Section 110 company would be, even for Revenue, too big a breech of their Irish anti-avoidance laws to overcome.

3.2 Bankruptcy laws. All vultures use lots of bank debt in their Section 110s (i.e. Oaktree had a €75m non-recourse loan from Citibank in their Mars Capital Ireland Section 110). Banks will not lend into a structure where a 3rd party “owns” it as the 3rd party could put itself into bankruptcy (be in limbo for years, and re-classed as an NPL).

**An Irish Resident Charity solves all the above. ** It is Irish Resident (making the Section 110 as an Irish Trading Business under the US Ireland Tax Treaty). It is separate from the Vulture Fund (shields the Section 110 from being taken as a US Group Subsidiary by the US IRS). And, a unique quirk in law, an Irish Charity cannot go bankrupt. That is why almost all Irish Section 110s (Vulture owned, and even IFSC ones) are “owned” by Irish Charities. They are an integral part of the tax avoidance mechanism.

Of course, why would an Irish Charity get involved with this. It is complicated, doesn’t sound right (i.e. you granny would know something is up here), and involves institutions that are doing unpalatable things. There is also potential liability if the US IRS really went after the Irish Section 110s (might do in the future) and joined the Irish Charity “owner” into their litigation (and looked to extradite Charity executives to face charges in the US under the tax code, which means jail).

Therefore, we have seen some major Dublin law firms set up their own in-house Charities:

IRISH INDEPENDENT: Cluster bomb firm BAe uses Irish charity in $2bn tax scheme, with A&L Goodbody Solicitors
ARBUTUS HOMELESS PEOPLE’S TRUST, the A&L Goodbody private charity that nobody has ever heard of in Ireland
Arbutus Homeless Persons Trust

IRISH TIMES: Law firm Matheson defends use of MEDB, BADB and EURYDICE charities to help hedge funds cut tax bills
Medb Charitable Trust Limited
Badb Charitable Trust Limited
Eurydice Charitable Trust Limited

Even the IFSC trade journals are beginning to wonder how sustainable this con is?

IFC Review: Irish tax lawyers’ charity may not pass public opinion test (Matheson’s Medb, Badb and Eurydice).

Regardless of what “comfort letters” the Revenue / State has given Vultures for their Section 110 Irish tax avoidance vehicles, direct the Irish Charity Regulator to ban ownership of Section 110s that are active in the domestic Irish economy, and you take away the Vultures tax avoidance “shell”.