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

Here are the accounts for a Carval entity, another 250 euro tax charge… purchased assets from NAMA. … 4-accounts

Interest income 8,098,958

Interest expense 7,144,271

Note on interest expense

No shit :laughing:

Tax 250

Assets less current liabilities 79,572,231

Auditors KPMG
Solicitors The great Arthur Cox

Another Carval entity - purchased a bunch of loans from Friends First…

Tax - yeah 250

Bit of theme here… another carval entity

Bought loans from IBRC. 250 tax.

Seems a bit strange taxation note. Looks like there is deferred tax but no note regarding it in the accounts. Not saying the accounts are dodgy but doesn’t read right.

OT but here are a set of completely wrong KPMG accounts - and a charittee :blush:

No cash flow as required by Cos act 2014 and they availed of the exemption under Cos acts 1963 to 2014.

Yeah I know…

Vulture Funds in Ireland
This new website and blog is run by David Hall & Stephen Curtis from the Irish Mortgage Holders Organisation.

Turlough Galvin, Head of Tax Group in Dublin Law Firm, Matheson (2nd largest in Dublin)
(a.k.a. lawyers at centre of Deputy Stephen Donnelly’s Irish Charity Vulture Fund Scandal).

At his day job in Dublin law firm, Matheson…

Winning 2016 Irish Tax Law Firm at “International Tax Review”, described to me as “Oscars” for euro tax lawyers…
(A&L Goodbody, other Irish law firm most prominent in working with Vulture Fund schemes, won it in 2015 and 2014)

Writing many (many, many) complex submissions to the Dept of Finance on all aspects of Tax Law…
(you can google the MOPS / Matheson submissions to the Department of Finance on

His own Biography claims that he was directly involved in drafting several pieces of Irish Revenue legislation…

His Tax Group has notes on dealing with the Irish Revenue, as this brochure for Irish tax avoidance quotes …
IRELAND: The SPV Jurisdiction of Choice for Structured Finance Transactions, by Matheson Tax Group (2013)

Ireland is not a tax haven.” (what a strange thing to say, reminds me of something Richard Nixon once said. however, if the next line doesn’t qualify Ireland as a tax haven, I don’t know what does …).

Through proper and careful planning the position can be achieved such that the SPV earns a minimal profit (there is no specified minimum amount required by [Irish] law) subject to the [Irish] corporation tax rate of 25 per cent.” (only a tax lawyer could write this. despite saying you can “structure” things to generate no profits, you want to quote the fact that that the tax rate is an onerous 25%. always one eye on the US IRS i.e. “we are not a tax haven”).

[NOTE this “25% tax rate” quirk is discussed in more detail here]

It is also important to note that although the SPV must notify the Irish Revenue Commissioners (Revenue) of its existence, no special rulings or authorisations are required in Ireland in order for the SPV to achieve this tax neutral status.*” (i.e. just in case you are worried about “regulation” or “anti-avoidance”, if you get any grief from Revenue, tell them I said to get stuffed and check their rules … as I wrote them. the lawyers are in control of this structure, not Revenue).

(*) tax neutral is “lawyer speak” for zero-tax, again, always one eye on the US IRS watching for evidence of “sham” structures.

On the Board of Matheson Foundation and its three identical unusual Medb, Badb and Eurydice Charitable Trusts…

Which Stephen Donnelly T.D noted in Dail being used to facilitate avoidance of €bns in Irish domestic taxes …

Turlough still finds time to brief other Irish Charities (i.e. Philanthropy Ireland) on “opportunities” …

And of course, catching up with “good friends” …

tune in next week for the A&L Goodbody Tax Law Team (who won the International Tax Review best Irish Tax Law firm in 2015 and 2014, before being upended by Matheson), and who, with Matheson, dominate the business of Vulture Funds using Section 110s to avoid all Irish domestic taxes on their distressed debt.

Is “BDO Ireland” the first Dublin professional firm to exit rapidly from the Section 110 Vulture Fund Tax Avoidance Scandal?

Dublin accountancy firm “BDO Ireland” have only just resigned from Section 110 Vulture Fund, Carval Investors 28th July 2016

It could not be due to fees, as “BDO Ireland” are one of the cheapest out there.

It could not be due to technical competence, as the Vulture’s Section 110 vehicles are so simple / easy to set up, they are almost comical (you just need the €40 CRO fee and 5 working days to make them). Section 110s only exist in a few lines of taxation legislation (TCA 1997) and are effectively unregulated (outside of normal company leglislation).

It could be KPMG (who do most of Carval’s Section 110s) cleaning up, however it is still a pretty unusual occurrence, and never an act you want to make as a client when there is so much heat and scrutiny you (I.e. hard to imagine Carval would take the step to kick off a smaller, but very (very) politically connected accounting firm, from their platform.)

Would it also be due to the fact that “BDO Ireland” is probably one of (if not the) biggest provider of professional “consulting” services to the State (via numerous departments), and can always be relied upon (like the ESRI) to reach the “right conclusions” on Government working groups?

“BDO Ireland” getting getting knocked off Irish State procurement lists for being involved in a scheme that helped foreign vultures avoid billions in Irish taxes from Irish distressed families, would put their business into administration in the morning (unlike Matheson, A&L Goodbody, KPMG, PWC, Deloitte or E&Y, who would carry on fine).

Probably better safe than sorry.

The reason, there is no human interest story, unless you pack a mother and her children in the back of a car after being evicted from their accommodation and tie that directly to the activities of the vulture funds it’s just a boring accounting issue so the SJW types in the Irish Times will leave it to the business journalists who will tow the line or “you’ll never eat lunch in this town again”. Since there are legal firms involved they can can be expected to deploy the comrade DiHoBi strategy which makes editors of newspapers with poor balance sheets very wary, in addition to the political calculations involved if this leads to another election.

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,_Vienna

Great work by you, Observer35 in keeping us clearly updated on this important matter.

Fianna Fail could sort this out easily, if they want to, but I’m not sure that they want to be involved.
The party is very well connected in many ways to the legal entities in the Financial World following the various actions that were going on at the time of the GFC whey they allowed the Banks to write the Bank Bailout legislation to suit the Banks, AND, when they allowed vested interests to write the NAMA legislation as a bailout for other ‘too big to fail’ vested interests.

The law can be used, as is, and if not as is exactly through appropriate changes to make sure that the vulture funds do get what is coming to them.

This wold take courage on the part of senior Revenue, DPP, Minsters, Cabinet, Garda Suichona etc. to get the message delivered so that either an appropriate amnesty/arrangment/etc. could be prepared (the easy way) or so that it can be set up to go through the legal channels so that with appropriate arrangements that Tax would be paid. I’m not sure if it would exactly work out if it went the court route but at least it is a pathway that could be described to the vultures if they are unwilling to pay a reasonable (corporate 12.5%) tax level.

My big worry is that there is no one either in the elected or non-elected government, either in power or supporting the current MINORITY government that is willing to rattle this for the public good.

No. Only plebs, the working poor, pay taxes in this country.

Everyone else lives off them.

That’s how it is.

I’m still waiting for Godot!

Dublin unit of US hedge fund with $8bn assets pays $125 tax … -1.2756124

Interesting stuff Observer35.

As a non-accountant/non-lawyer etc. (so not a specialist in these complex areas of financing and structures) can I just throw something out here?

From what you are saying, or from quoted links, the laws allowing Section 110 companies to be formed date from the past when Irish governments wanted the IFSC to be able to compete as an international financial centre and to create badly-needed jobs here. FF or FF-led governments were involved in this so not sure why you are throwing aspersions at FG only?

Secondly going back to time of the GFC and when NAMA was set up, these were desperate times (and remain so to some extent). The government/Dept of Finance were obviously desperate to get some external money in to take over what were dodgy property portfolios such as interest-only portfolios. Without the carrot of Section 110 would these funds have come in to reduce the NAMA/busted banks (i.e Irish sovereign) loan books?

Look at it another way. Without the “vulture” funds coming in (an instantly prejorative term by the way) would the alternative have been the former owners of these loans (busted developers) getting new loans from Irish banks, backed by the State, to buy back their old development portfolios from NAMA/the banks at heavy discounts? I think that such an outcome would have been even more unpalatable to the Irish public (certainly to me) that a misuse of Section 110 loopholes.

Well its easy to call these vulture funds etc in hindsight but at the time they would have been taking a risk in investing in bad loans. I understand that these loans were generally auctioned off so other people could have bought them if they were such a sure-fire investment. Some of the commentary on the funds success, or about specific legal or accounting firms not taking part in the bonanza, can come across to non-participants like myself as agenda-driven or just jealousy to some extent.

It is easy to see why loopholes were created in the desperate times of the GFC and you can hardly blame risk-takers for taking advantage of such loopholes. But if Section 110 is now clearly not required further at this stage then I agree wholehearedly that the government and/or Revenue should take steps to close down the relevant loopholes. And perhaps the Department of Finance needs to recruit greater brainpower so as not to get run rings around on complex taxation issues if this has indeed happened.

Sure, we’re all begrudgers.
Investors not exploiting these tax breaks were pushed aside by those with better tax advice which left the Country poorer as a result.
NAMA was and is an “invitation only” party with the guest list controlled by tax advice firms in Dublin.

Well actually the Country was originally richer if the successful funds outbid the non-successful which I imagine was the case. Long term investment success was not a given, it could all have gone tits up in a different economic/political climate, hindsight is a wonderful thing.

Thats somewhat controversial to say as you are implying that tax advice firms controlled the NAMA auction process. But I have also read that Section 110 is simplicity itself to set up so any old company could have set up these structures? I would have thought that the “party” could only be attended by those with deep pockets and an appetite for risk but when is a commercial property portfolio any different?

No, it appers this arm of government didn’t price in the tax foregone as that is not their concern; they just want to splash around headlines about NAMA turning profits.

And as an ordinary Schmuck would Revenue have answered their queries and given them actionable assurances?
Maybe you have had another experience of dealing with Government bodies but my experience of them is that the PFO letter is the standard response to any difficult question you may pose to them.

NAMA bought the loans with taxpayer funds at a price well above the market (Long Term Economic Value was the euphemism they created). They then bundled these up and sold them quickly, despite the fact that they were a pseudo-sovereign entity and could have worked the assets over time. To compound this, they sold them all to foreign entities -essentially creating a tenant situation for the state with regard to much of its land and property assets- and to top it all off, they sanctioned the misuse of a company structure to ensure that said foreign entities would pay ZERO tax back to the people who funded the entire racket.

There is nothing defensible about this. Nothing.


Look I am not trying to defend anyone. But rather than been a fan of conspiracy theories I prefer to take the Occam’s Razor approach. Or playing devil’s advocate if you so wish.

The possibility of some future uncertain corporation tax foregone by the State was hardly part of the auction remit for NAMA. So no point for anyone to cast aspersions at them for taking the highest bids.

I personally wouldn’t see the State/NAMA as a great long-term investor/manager of such a large property empire and it was open to all not just to external investors to buy these property portfolios off their hands.

As stated these were desperate times and the State had to bring in external investment to get these dodgy portfolios of the States balance sheet. I don’t remember a queue of domestic risk-takers beating down the States doors to buy these great portfolios. Also the scale of NAMA required external investors.

Funds came in and took advantage of existing loopholes and some accounting firms lobbied and grabbed hold of the opportunity. And yes the State seems to have been over-generous in the whole areas of Sections 110s since the start of the IFSC. It is up to the State to legislate out unwanted loopholes, not for commercial interests not to take advantage of these.

If the economy or political scene here had gone belly up, as was the case with Greece, then we wouldn’t be worried about the State missing out on future Corporation tax. Hindsight, risk-taking etc.

Onioneater (et al), let me make a few points re above:

1. Who started Section 110s. It was a few specific Dublin law firms who lobbied for Section 110s. Irish Government was wary on many fronts. They were afraid of contaminating the domestic tax base (ironic). They were afraid of the EU and US IRS labelling Ireland as a “tax-haven”, and harming the growth IFSC was experiencing in US multi-nationals using Ireland as a base for EU (very different area from securitizations). In the end, the law firms prevailed, and Section 110 was born. As I said earlier, the Section 110 rules were very crude as the Irish Revenue was not willing to spend years drafting up detailed Irish securitization tax laws (in fact these specific Dublin law firms drafted most of it - and still do). A Section 110 only costs €40 and a notification to the Irish Revenue. If Revenue don’t object, and you don’t fall foul of other Irish anti-avoidance tax laws, you are off. This is the real “scandal” as Revenue (directed) changed their own anti-avoidance laws, to fit Section 110s into the domestic Irish market. Not only are we loosing billions in valid taxes, but these rule changes have led to Super QIFs and Orphaned Super QIFs, for others to avoid Irish domestic taxes.

2. Would the Vultures not have bid without Section 110. I can vouch for 2 vultures (one big, one small) who only discovered late in the bidding process that Section 110 would make things tax-free. It did not make them change their bid one bit. In fact, one actually kept a reserve for tax as their own US tax lawyers (very expensive) were skeptical that a full zero-tax outcome could be obtained. These same funds were bidding on US sub-prime assets and paying full US taxes (very high), and bidding on German Landesbank portfolios, again paying full German taxes. Their Gross IRR target for Ireland was the same as Germany. Remember, that from late 2013 onwards (when the real volume started to get sold), Bank of Ireland and AIB were regular bidders (and won several). From mid 2014, Ulster Bank began to bid. All these three will, at minimum, pay 20% Irish withholding taxes, and a good chunk of corporate tax in medium term (despite their accrued losses).

The Government didn’t offer Section 110 as an incentive to vultures. It is not by accident that Matheson and A&L Goodbody - the two main IFSC lawyers - completely dominate the Section 110 structuring of vultures in Ireland. Arthur Cox, William Fry and McCanns are nowhere. That is because it was not a Government initiative. However, as you can see from my earlier posts regarding Revenue’s protection of the vultures Section 110 tax-free schemes from Irish anti-avoidance rules, the Government seems to have gone the “rabbit hole” with these two legal firms, and now can’t stop it, for various fears.

3. Alternative to Vultures. I have no problem with “vultures” (yes it is a pejorative term, but not without merit), as long as they (a) obey the rules and (b) pay their taxes. The vultures in Ireland have been getting a deal like no other. Not only will their 10 year 15% IRR target be beaten materially, but it will all be tax free. There are few places in Europe and the US that you could have gotten this in 2014. To expand on Daniel Plainview’s point above, an ecomony is like a “village”, while wealth can shift violently amongst the villagers, as long as the village as a whole maintains the ownership of the assets, its recovery - as a whole - can be quite swift. However, when the village takes in foreign capital, the recovery is “leaked” elsewhere and the village does not fully recover. In addition, what that foreign capital takes all gains without any “village taxation” (i.e. the village’s schmuck insurance), then this effect is amplified. The issue was not alternatives, the ECB had given us the gilt of a lifetime - NAMA (in return for the prom note, presumably). We just needed to use it.

It galled me to see in 2014, when Irish 10 year bond yields were racing below 2%, foreign banks like Citibank, were giving vultures 70% non-recourse finance on Irish distressed loans (i.e only took the loans themselves as security), and NAMA / IBRC were still shoveling them out at speed, on un-leveraged running yields (i.e. interest paid in 2014 divided by sale price) of 14% (which the vulture used Citibank to convert into leveraged income yields - ignore capital gain - of +25%, on 20 year assets!!), and all fully tax-free. Banks like Citibank even went to NAMA and IBRC direct, to ask if they wanted this non-recourse debt and got turned away. Noonan had a “political” objective to get IBRC done and NAMA deleveraged before the 2015/2016 election. Unfortunately, the total cost of this “political” objective, could be €20bn just on lost taxes alone (per earlier posts), and probably another +€20bn from selling too quicky into a rapidly improving market.

That cost, ironically, will probably match (and exceed) the entire cost of the Irish bank bailout.

But that is how modern banking / leverage cycles work. If you can keep your cool in the crisis and tough it out, then as per the US, the actions that Central Banks will take (one more time) to re-build the next cycle, will bail you out and more. (I have a strong view that there is an unfortunate, and irreversible, end-game to this re-build, but that is for another post.). Anybody who owned prime Dublin office, and has seen values per sq ft almost fully mean revert, understands this (less several stone in stress!).

If Noonan had fallen ill and/or FG fell, and Ireland went pair-shaped for a year or two, we would be selling assets at way better prices and hopefully, not tax-free.

FF were textbook dummies in landing us in this mess, but FG were probably also textbook dummies in leaking enormous amounts of wealth out of the “village” (tax and low prices), to artificially accelerate the appearance of the “recovery”.

It is hard for me, as an Irish tax-payer, to accept the above, and know that my Government also made it tax-free for them AND still works hard today, with NAMA and Revenue, to preserve this tax-free status (even though it violates EU law).