Why do Matheson and A&L Goodbody dominate as lawyers for the Vulture Fund’s Section 110 structures?
We have seen from checking the filed CRO accounts of the vulture funds in Ireland (almost all of whom are using Section 110s to avoid Irish domestic taxes), that Matheson and A&L Goodbody dominate as their main legal advisers.
The “International Tax Review” (the most valuable industry prize), made Matheson the Irish Tax Law Firm of the year in 2016, and A&L Goodbody Irish Tax Law Firm of the year in 2015 and 2014.
They even both even have their own in-house Irish Charities (Matheson with Medb, Badb and Eurydice; while A&L Goodbody have Arbutus Homeless People’s Trust); Irish Charities are a key part of the Section 110 tax management plan.
Why have Matheson and A&L Goodbody come to dominate this area so completely?
Why are the other heavyweights Arthur Cox (biggest law firm in the country), and McCann’s and William Fry (the blue bloods), hardly around in this space (only seem to appear, if at all, in much smaller capacity)?
The answer is probably from a favor that the Irish Government did for these firms almost 20 years ago. After lobbying by major Dublin firms, the Irish Government passed the 1997 Taxes Consolidated Acts, from which Irish Section 110 structures where born. This was the Irish Government’s gift to the Dublin professional services firms to allow them to compete in the global securitization industry. There would be no tax revenue for the Exchequer, but it would be a boost to the Dublin services economy. As mentioned before, the Revenue either had the choice of spending 10 years to write the detailed leglislation to handle the rules for this very complex and diverse area, or do, as they decided, just write up some quick and simple rules that would meet the critical test - convince the US IRS that this was “real” leglislation, and accept it.
With this new leglislation (and some upgrades in subsequent acts), IFSC tax structuring took off. While some of the “traditional” established big Dublin legal firms like Arthur Cox and William Fry participated in it, it was Matheson (then Matheson Ormsby and Prentice, or MOP) and A&L Goodbody who dived in head first and came to dominate it completely.
Even though there was no tax revenues to the Irish Exchequer from the IFSC securitization market, there was a strong boost to the Dublin Services economy. Securitization is also a great artificial boost to Irish GDP (but without any “real” contribution). With Irish GDP inflated from securitization “fresh air”, it helped Irish banks to attract cheap financing programs from mainly German banks in the boom, who assumed Ireland was more solvent than it really was. From this was born the naughties property bubble in Ireland. Everybody was happy with their lot and off things went until the GFC.
In the GFC, the securitization market died in the IFSC. Huge securitization programs, and collapse of securitization financiers like Depfa Bank, brought the whole industry down. In addition, the market - now glass half empty - realised that Irish banks where hugely over-leveraged (vs. their GNP), and withdrew their roll-over financing. The end was swift.
During this bleak period for the “securitization” law firms like Matheson and A&L Goodbody (Arthur Cox was doing all right billing the State millions for advice on their various Irish Bank and EU bail-out programs) struggled. There were additional issues for individual partners who might have indulged in too much personal leverage during the boom.
In 2011/2012, as the foreign vulture funds arrived in Ireland to check the Irish carcass, they did the rounds of the Dublin law firms. The ones that really excited them, where those that came back with ideas on how IFSC securitization structures might be used to, legitimately, avoid all Irish domestic taxes on their Irish domestic investments. After all, these law firms had effectively written the relevant tax legislation for the Revenue in 1997 (and 2011) to create this industry.
There are believed to have been many meetings held between IFSC law firms, vultures, and Dept of Finance about this. Eventually, Revenue (was convinced / told) to bless it. From 2012, vultures began to use Section 110s in the domestic Irish economy, and would bid at NAMA, IBRC and other major loan auctions, with full Section 110 bid vehicles (whose equity was usually owned by an “Irish” Charity).
As I have pointed out, the Section 110s were so “alien” to the Irish domestic tax market that they would constantly run foul of various Irish anti-avoidance laws. The Revenue changed the Irish rules again and again to help ensure that the Vulture Fund Section 110 (equity owned by Irish Charities) were able to get around these rules:
**Now we have a situation where it looks like the vulture fund Section 110s (equity owned by an Irish Charity), of the clients of these 2 law firms, could legally avoid more in domestic Irish taxes (c. up to €20bn by estimates), then the entire IFSC has paid in total taxes over its lifetime (from both the securitization and the much bigger, US multi-national, segments) to the Irish Exchequer (both in corporate taxes and indirect taxes). **
As I have also pointed out, Section 110 schemes are remarkably fragile and can be taken down easily.
Given that FG / Noonan / NAMA are up to their necks in helping Vulture Section 110s, the question is whether FF (uniquely not involved in this Irish scandal), are up to taking on what have become the #2 and #3 largest law firms in Ireland?
IRISH TIMES: Are there now only three law firms left in the ‘big four’ Arthur Cox, Matheson, A&L Goodbody?
Remember, if the foreign vultures find out that they are NOT going to legally avoid up to €20bn in Irish domestic taxes over the next decade, then they are going to want to sue - very badly - the guys who advised them on this scheme in the first place.
Never in my life, did I ever expect to view FF as a ,major “underdog” in a fight in Ireland …
David with the Head of Goliath (Caravaggio), Vienna