Tipperary TD, Mattie McGrath, has submitted an amendment to the Finance Bill which is before the Dáil today which he says aims to ensure investment funds and credit service funds “are held accountable” and “operate transparently”. He said that what he described as “vulture funds”, currently hold around 100,000 mortgages in Ireland.
Deputy McGrath stated that: “The proposed amendment aims to reclassify Special Purpose Vehicles (SPVs) utilizing Credit Servicers as ‘investment undertakings’.
“This pivotal change mandates Credit Servicers to deduct tax at source and serve as local agents for SPVs in their interactions with Revenue. This measure is essential to prevent these entities from evading tax responsibilities,” he said.
“It is crucial to emphasize that I firmly regard profit participation as a form of tax avoidance. Therefore, such profit ‘participation’ should not be tax-free, not even a ‘reasonable return’ portion. Furthermore, the lack of transparency behind Central Bank closed doors raises significant concerns about potential undisclosed activities, with all QIAIF schemes now enveloped in ‘Swiss bank-style’ secrecy,” the Independnet TD claimed.
Profit participation rights are typically used by companies to raise money from investors, by granting or guaranteeing the holder of the right to a certain profit share or a fixed interest rate.
“We urge other TDs to support this amendment, which is designed to hold Vulture Funds accountable. Presently, vulture funds control approximately 100,000 mortgages in Ireland, affecting numerous family homes, small businesses, and farms. These funds operate through Credit Servicers regulated by the Central Bank, allowing them to remain detached from borrowers and evade direct accountability. This amendment aims to ensure that Credit Servicers are responsible for the taxes and returns owed by these funds, aligning them with other business entities.”
“By treating vulture funds like ‘collective investment trusts,’ where managers handle tax matters before distributing profits, the amendment aims to increase revenue, particularly from capital gains tax. US-based hedge funds, for example, would need to arrange for tax refunds, and the requirement for transparent financial statements would enhance accountability and facilitate Revenue inspections. This transparency also addresses concerns related to money laundering and interest limitations on profit participation funding,” he said.
The Tipperary TD said that the Rural Independent group is also raising concerns about the anonymity provided to Qualified Investor Alternative Investment Funds (QIAIFs) by the Central Bank. They are seeking clarification from the Minister for Finance on whether the Central Bank shares QIAIF information with the Revenue Commissioners. “This is a critical issue as it pertains to the transparency and accountability of these investment vehicles,” Deputy McGrath said.
“This amendment is a significant step towards ensuring that all investment entities, including vulture funds and credit service firms are held accountable for their tax obligations. It will bring much-needed transparency and fairness to our financial system, benefiting both the taxpayer and those whose mortgages are held by these entities. By expanding the scope of what constitutes an investment undertaking, we are closing loopholes that have allowed these entities to operate without sufficient oversight,” he said.
He concluded, “The Rural Independent Group believes that this change will not only increase revenue but also enhance the integrity of our financial system. It is about ensuring that everyone pays their fair share and operates within a transparent and accountable framework.”
“This is especially important as these vulture funds, which currently hold around 100,000 mortgages in Ireland, have been allowed to make millions while paying little tax and riding roughshod over loan holders. These funds affect many family homes, small businesses, and farms. We need to protect our communities and ensure that these entities are not exploiting loopholes at the expense of ordinary people,” Deputy McGrath said.
In response to a similar question raised by the Independent TD in July in regard to investment funds, Minister for Finance Jack Chambers said that “the activities of non-bank entities are already regulated by the Central Bank in Ireland under the provisions of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 as amended.”
“The legislation ensures that relevant borrowers whose loans are sold to non-bank entities maintain the regulatory protections they had prior to the sale, including the protections provided by the Central Bank’s statutory Codes of Conduct and Consumer Protection Code.”
“As of 30 December 2023, non-bank entities are also subject to the European Union (Credit Servicers And Credit Purchasers) Regulations 2023 which transposes the EU Credit Servicing Directive into Irish law.”