Relocated “Vulture Fund Irish Section 110 SPVs Tax Avoidance” posts to have a separate Apple Tax Primer 101 Thread:
[Apple IP Scam Irish tax avoidance 101 explained is here:
[Irish Commercial Property zero tax laws here:
**This thread will explain how US vulture funds pay no Irish taxes on their Irish domestic investments (or comically, €250 tax), why it is the largest avoidance of taxes to the Irish Exchequer in State history (more than Ansbacher, Planning Tribunals, even Apple), how the scheme involves the help of the State, Irish Charities, NAMA and Irish Revenue - who have worked to keep this multi-billion Irish tax avoidance scheme (“orphaning” trick) going in the domestic Irish economy. And how three Dublin law firms - Matheson, A&L Goodbody & Dillon Eustace - developed it during the financial crises (via their “lobby group”, the Irish Debt Securities Association). It will also explain why these structures would classify Ireland as a Tax Haven (OECD definition), and how they violate EU Competition law.
It happened as a result of fee-hungry IFSC law firms, meeting a State run by ex. school teachers, in the largest crash in Ireland’s history, who were desperate to sell-off IBRC & NAMA assets quickly, in order to “win our economic sovereignty back” (i.e. get the Trokia off the ex. school teachers backs, so they could get back to their own agendas). In return for a contribution of c €50-100m p.a. in fees (paid to IFSC lawyers), Ireland looses c €20bn in Irish taxes. **
The Irish Section 110 SPV tax scandal has been covered by the BBC, the Financial Times and the New York Times.
BBC: Apple Tax Case: Ireland’s other taxing Issue - Section 110 Companies
FINANCIAL TIMES: Ireland confronts another tax scandal closer to home
NEW YORK TIMES: Wall Street Is Europe’s Landlord. And Tenants Are Fighting Back
First, our Primer on Irish Section 110 SPVs (“Special Purpose Vehicles”, or “S110s”) on this link:
Second, you want to jump to the answer, read Stephen Donnelly’s submission on fixing the Section 110 SPV scandal
In summary (you can find these facts in the posts that follow):
1. Largest tax avoidance in State history. Distressed debt vultures target base case returns of 15% p.a. over a 10 year hold period (this is not PE or HY investing). When Cerberus, Lone Star, Apollo, OakTree, CarVal etc., invest €1bn, they expect it to be worth +€4bn after 10 years. An Irish corporate (say BOI or Ulster Bank), pays 12.5% Corporate Tax plus another 20% Withholding Tax on profits. Those two rates combine for an effective 30% tax rate. A vulture investing €1bn in Ireland, expects it to become €4bn after 10 years, and should incur €1bn in Irish taxes (30% x €3bn profit). The vulture should incur Irish taxes (€1bn) equal to the size of its Irish equity investment (€1bn). A small group of vultures who invested +€20bn, will avoid all Irish taxes.
Distressed Debt Vulture Base Case Returns - 15% over 10 years
OakTree’s Mars Capital Ireland SPV Case Study: €80m Equity Investment vs. €80m Irish Taxes Avoided
OakTree’s Mars Capital Ireland Case SPV Study: Avoiding Irish Corporate Tax, Irish Withholding Tax and Irish VAT/Duties
Cerberus Project Eagle SPV: How the Irish taxpayer paid for Cerberus’ acquisition of Project Eagle
Cerberus Project Eagle SPV: 18 months on, Cerberus’ running yield on Eagle now over 30% per annum
2. Dublin IFSC law firms, who “own” S110, make c €50m in annual fees.* Section 110 was set up in the 1997 TCA after lobbying from Dublin IFSC law firms for a tax-free SPV (or legal “shell”), to compete in the Global Securitization market. The State was wary of this leaking into the domestic market, but was assured by its anti-avoidance tax rules. Rather than spending 10 years writing up detailed tax legislation, Revenue set up S110 SPVs as a separate class of Irish Resident Company (S110 SPVs must be “Irish Resident” to shield from the US IRS), with crude legislation. Dublin IFSC lawyers could do whatever they wanted with the S110 SPV. Revenue’s Irish anti-avoidance rules would protect the domestic corporate tax base (why no Irish corporate or plc - no matter how big / rich / powerful - tried S110 in domestic Irish economy). All updates and changes to Section 110, were from Dublin IFSC law firms (they drafted changes, the State stamped them). In the crisis, as the global securitization market collapsed, these IFSC law firms started winning vulture clients with “domestic versions” of S110s.
(*) Note. The entire Dublin IFSC SPV market generates about €100m in fees for lawyers and accountants, however about 50% of that are FCVs, which are a different class of SPV regulated by the Central Bank and not useful to Vulture Funds.
MATHESON: No. 1 Irish Tax Law Firm, and the leaders in Section 110 SPV development.
IRISH TIMES: Matheson defends use of Irish Charities to help Hedge Funds cut Irish Tax bills
IRISH TIMES: State scrutinising Matheson’s use of tax loopholes for Vulture Funds
How to find the vultures Section 110 SPVs - their Company Secretarial Firms
How the Vultures pulled it off - their Dublin Tax Lawyers, Accountancy Firms and Secretarial Firms
IRISH TIMES: Lawyers and accountants share in €100m fees from SPVs in IFSC
IRISH INDEPENDENT: Only lawyers and accountants gain from Irish ‘SPVs’ - Central Bank
3. It is avoidance, worldwide, and in Ireland. The SPVs the vultures are using (Section 110s “owned” by Irish Charities) are available, in different forms, all over the world. However, it is abuse (from a tax perspective), everywhere, to use these vehicles to take profits out of a domestic economy, without paying domestic taxes, and export gross to Cayman etc. Is it not tolerated in the US tax law, nor in Irish tax law. It if was, then every Irish corporate (i.e Kerry Group, Ryanair, Bank of Ireland), could securitize their business into a Section 110 (it’s easy), and stop paying all Irish corporate taxes tomorrow. They don’t, because they know it violates Irish anti-avoidance tax law. This is not a “loophole” (Section 110 is deliberately designed to be one big “loophole” to allow Global Securitization Deals be structured in whatever way they needed), or a consequence of our IFSC-economy. It is a violation of domestic Irish anti-avoidance tax rules that the State supports.
HUMOROUS EXAMPLE: Turning Strawberry Hill House, Vico Road, Dalkey, into a Section 110 (no tax, vat or stamp duty)
HUMOROUS REALITY: Irish Central Bank landlord a Vulture Fund paying no tax
4. Irish Revenue changed its own anti-avoidance rules for Vultures. Section 110 SPVs are so “alien” to the Irish domestic Irish tax code that they trip off several Irish anti-avoidance tax laws (walking into Revenue’s “mine field”). If an Irish citizen tried to use artificial internal high-interest loans to re-route their domestic Irish profits offshore, Revenue would prosecute as Tax Evasion. Vulture’s get around this via the “orphaning” trick where a third party Irish resident “owns” the equity of the S110 SPV while the Vulture masquerades as a 3rd party financier. Again, if an Irish citizen still tried the “orphaning” trick, Revenue would still prosecute as Tax Avoidance. Irish Revenue however do not challenge S110s (despite knowing the “orphaning” trick backwards). Instead, Irish Revenue issued rulings to “protect” the Vulture’s Section 110 SPVs from Revenue’s own anti-avoidance rules (i.e. Revenue created “pathways” in their own “mine field”). From these “pathways”, we now see improved Irish tax avoidance schemes (called “Super QIAIFs”). Unlike S110 SPVs, QIAIFs do not file public accounts, so you will never see them. Zero Irish tax with full secrecy.
Irish Revenue amending Irish Withholding Tax Anti-Avoidance Laws to fit Section 110 SPVs into Domestic Economy
Irish Revenue amending Irish CG50 Tax Anti-Avoidance Laws to fit Section 110 SPVs into Domestic Economy
Irish Revenue ignoring their own rules on capital gains taxes to fit Section 110 SPVs into Domestic Economy
How the Irish Revenue’s protection of Vulture Fund’s Section 110 SPVs, has now spawned Orphaned Super QIFs
Revenue’s S110 rule changes, mean Noonan is loosing control of Domestic Tax Base
5. NAMA (and IBRC) understand S110, and is selling to it today. NAMA (and IBRC) do detailed checks on all bidders (full legal structure of bidding company) to ensure that the distressed borrower is not involved. NAMA (and IBRC) have known for years, that almost all vulture bidders were using Section 110 SPVs (“owned” by an Irish Charity). NAMA is still conducting sales today where all bidders are Section 110 SPVs. Note from 1. above, if NAMA sold a loan to a vulture with a Section 110 for €1bn, we would be no worse then if NAMA sold to BOI (or AIB / UB) for €1. The Irish taxes BOI would pay, will equal the €1bn cheque the vulture hands to NAMA. When NAMA (and IBRC) say they take taxes into account when selling loans, they don’t.
Sunday Business Post: NAMA did know that Vultures used Section 110 Vehicles
Noonan lying to a Dail Question on whether NAMA knew Vultures used Section 110 SPVs
Frank Daly (Chairman of NAMA) at a Mason Hayes & Curran presentation in London on using Section 110 SPVs
RTE: Revenue aware that NAMA was selling to Section 110 Vehicles
SUNDAY BUSINESS POST: NAMA aware that it was selling to Section 110s
IRISH INDEPENDENT: State now appears to have delivered the “Sale of the Century” to Vultures
POSTSCRIPT - and the ultimate irony when it turned out NAMA itself was invested in Section 110 SPVs
SUNDAY BUSINESS POST: Nama set to be caught in new tax avoidance net
6. Section 110 SPVs are easy to take-down. While Section 110 SPVs are powerful Irish tax avoidance vehicles (no Irish corp tax, no Irish withholding tax, no Irish VAT or Duty), they are fragile. Their legislation is crude and simple (costs €40 to set up on CRO). The vulture S110 SPV accounts in this thread, are no more complex than SME accounts (with more zeros). The only wrinkle is to separate out the SPV’s real bank loans, from the artificial internal ones (called PPNs) used to “export” Irish domestic profits offshore. The Section 110 SPV has to be maintained for the full decade for the vulture to get the full tax avoidance benefit (i.e. the €20bn). Both US and Irish anti-avoidance tax laws prohibit using artificial high interest internal loans (the PPNs in the Section 110 SPVs), to “export” domestic profits to offshore tax havens. Vulture Funds get around this via the “orphaning” trick, where a particular type of third party Irish resident entity “owns” the S110 SPV equity, and the Vulture Fund masquerades as a 3rd party financier. Irish Charities (and certain other Irish trusts) are unique in being able to “square this circle” properly (can’t use an Irish Corporate or person). Stop “orphaning” and it collapses.
Can the Vulture Fund Section 110 Schemes survive without the help of Irish Charities
7. … but Government won’t touch them. ** The amounts of Irish taxes the vultures have at risk are huge. As per 1. above, a €1bn vulture investment in Ireland, should avoid over €1bn of Irish taxes over its ten year life. Therefore, even if the Government instructed NAMA to stop selling to Section 110s, it would be enough for the vultures to start litigating to protect their financial interests (they wouldn’t care about being barred from NAMA sales). The vultures would start waiving the Revenue letters sent to their Dublin tax advisers (per Apple), as well as their own minutes of meetings with the Dept of Finance. The public would not be happy at what they would see (neither would the EU, who could interpret as Illegal State Aid). In addition, the State plans using Section 110 SPVs to help US MNCs that have been forced “on-shore” in Ireland due to BEPS (i.e. Apple’s “Leprechaun Economics” moment), to continue paying c 0% Irish tax.**
Wilbur Ross Cardinal Capital: Another clear EU Illegal State Subsidy case in Ireland
How the Iish Media missed the real scandal of Cerberus €1.6bn Project Eagle Deal - Irish taxpayer paid for it
8. … hence Government’s strategy to “deal” with it. Fine Gael Minister Michael Noonan (and ex. leader of Fine Gael) has been on a mission since re-elected in 2011 to turn Ireland into the EU’s leading Tax Haven. Noonan has dramatically increased the range of vehicles that can used in Ireland to avoid all Irish (and therefore EU) taxes. Section 110 SPVs can be used for any type of Irish asset which can be securitized, which is almost everything (and as full Irish Companies, get the full benefit of the US EU Master Tax Treaty). QIAIFs (and ICAVs) are similar to SPVs but can used for any asset and don’t have to file public accounts (more secret). **These vehicles alone have made (1) all Vulture Funds tax free in Ireland, (2) all Commercial Property tax free in Ireland (see link above on Commercial Property), and (3) most US Multi-National’s also tax free (paying effective tax rates of well under 1%) (see link above on Apple). **To keep the EU off his back, Noonan will write new legislation to “clampdown” on these vehicles, however the legislation will include the new “loopholes” needed to keep the schemes going. The world however, is waking up to how extreme a Tax Haven Ireland has become under Fine Gael.
IRISH TIMES: Ireland branded 6th of world’s 15 worst tax havens
IRISH TIMES: The US new view of Ireland as a major Tax Haven
MOTLEY FOOL: Worlds Top 10 Tax Havens
That is how mad this whole thing is. Small number of foreign vultures operating in Ireland, using an even smaller group of specific Dublin IFSC tax law firms, with State and Revenue actively helping, avoiding €bns in Irish taxes.
The posts below address various “plant” articles that the Government, and certain Dublin professional firms, have put out. (many Dublin professionals I know are disgusted at what has gone on, but are too afraid to speak out on it).
They also add extra information on filed SPV accounts (and the Dublin IFSC tax law firms and accounting firms behind them) provided by grumpy, as well as brochures on how the vehicles work (and the new Super QIF & Orphaned Super QIFs).
Enjoy (but if you are an Irish tax-payer, you may get a bit queasy).
Finally, Noonan publicly admitted that Vultures are using Section 110 SPVs for a purpose that they were not intended for. Regardless of his proposed solutions, this is an important fact to note in the timeline of this scandal.
RTE: Government moves to amend Section 110 to close tax loophole used by vulture fund SPVs
Unfortunately, any doubt you will have regarding what side of the fence Noonan is protecting, will be dispelled when you read his proposed Section 110 “loophole closing” Amendment (i.e. it is a mostly cosmetic act, to deflect global media attention, from a growing understanding that Ireland has lost control of its own tax laws to Dublin IFSC lawyers, and is well on its way to becoming a full blown “Tax Haven”, but sitting, INSIDE the EU). €20bn in Irish taxes will now walk out the door to the Cayman Islands, and other “tax havens”, over then next decade from Noonan’s works.
Charity Regulator to investigate abuses of Charity Regulation
How the Vultures will pay no tax as a result of Noonan’s Amendment (hint: it was written by their Big 4 advisors).
How Noonan’s Amendment ensures the Irish Taxpayer funded Cerberus’ acquisition of Project Eagle.
The irony of the State loosing control of its domestic tax system to Dublin tax lawyers, is that other States are now starting to wonder if Ireland is not a “tax-haven”. Among the various definitions of a “tax-haven”, this is one of our favorites:
And now, we get this:
IRISH TIMES: Brazilian Airlines [using Irish Section 110 SPVs] furious as Brazil lists Ireland as tax haven
**Irish Section 110 SPVs, when combined with secretive Irish QIAIF vehicle (the “Super QIFs”), meet the more technical OECD’s “3 Criteria for a Tax Haven” definition - as pointed out by Stephen Donnelly TD in his excellent budget submission to Minister Noonan on fixing the Section 110 scandal (which Minister Noonan declined to do). Not even Luxembourg or Holland has a full tax, VAT and duty free vehicle (which can be made secret via QIAIF) inside their domestic economy, which also has the full shelter under the US and EU Master Tax Treaty (holy grail of Vulture Find and US tech and US pharma tax avoidance strategies). As the market realises the impact of Minister Michael Noonan’s actions, it will see that Ireland is the most aggressive Tax Haven INSIDE the EU. **
NOTE - when you get labelled a “Tax Haven”, you loose access to the full tax treaties that you have with those countries. You lose the reason why Apple, Microsoft, Google etc. are in Ireland. There is a reason why these MNCs are not in the Isle of Man etc. Without access to full UNRESTRICTED tax treaties (especially EU Master Tax Treaties), Ireland is useless to MNCs.
Stephen Donnelly TD Submits €20BN Proposal on Vulture Funds using Section 110 SPVs for Irish Tax Avoidance