Tax loopholes being made for vulture funds is a disgrace

Finance spokesperson of the Labour Party, Joan Burton TD, speaking in response to revelations at yesterday’s Select Committee on Finance, Public Expenditure and Reform, pointed out that Minister Pascal Donohoe’s failure as majority shareholder of Permanent TSB means over 6,000 distressed mortgages are being sold to a ‘vulture fund’ and it looks likely that a tax loophole has been created so that they will not pay the taxes that would be normally due.

Deputy Burton said “Minister Pascal Donohoe is the public’s shareholder on Permanent TSB, which is 75% owned by the State. Now it appears, based on documents given to the Oireachtas Committee on Finance yesterday, that 6,272 restructured mortgages have been sold to Glenbeigh Securities 2018-1 DAC by PTSB, which in turn is selling them to ‘vulture fund’ investor Pepper.

“The €1.3 billion of mortgages transferred have already been discounted by over 30%, in what appears to be a carefully constructed investment vehicle designed to avoid taxation.

“All of this has occurred under a blanket of secrecy, with legal confidentiality agreements being entered into, which apparently have bound the Minister for Finance as well. There is a question over how much the regulators like the Central Bank knew about this deal.

“This is yet another example of the public losing out to banks, developers and ‘vulture funds’. And the Minister has failed to provide safeguards despite assurances that these were in place.

“The so-called Section 110 tax loophole came to light in 2016 when it was shown that many big American and other foreign vulture funds were creating special purpose vehicles to buy up distressed property and avoid tax while doing so. We were then told that this particular use of Section 110 had been outlawed. However, the design of this new financial arrangement looks like it is built to get around the restrictions on Section 110.

“Pascal Donohoe has a lot of questions to answer. He assured us that this particular Section 110 tax loophole was closed. Is it going to be used in this case? He is the majority shareholder in Permanent TSB. Was he aware of this transaction, and did he sanction it?

“What is even more egregious in this case is that many of the people whose mortgages are being sold have been engaging with PTSB as their lender and have been adhering to their agreements to repay what they can afford. Although Minister Donohoe has claimed on previous occasions that the terms of their agreements will be honoured, that is cold comfort to those affected.

“I have had representations from constituents who bought at the height of the boom and who, despite having good jobs, are unable to repay the full amount. As a result, they and many like them are extremely vulnerable for when the ‘warehoused’ part of their loan becomes due. There is no guarantee that the new owner of their mortgage will do anything other than squeeze them for full value, which could drive them out of their homes, still in debt.

“People are genuinely scared by letters from Pepper telling them that their mortgage has been sold, as they have no guarantees about how they will be treated. There is also no obvious reason why their mortgages could not be further sold on, as part of a chain of financial transactions.

“Permanent TSB is a majority-owned State bank. As such, this sell off is the legal as well as moral responsibility of Minister Pascal Donohoe and the Fine Gael-Independent Government. I am calling on Pascal Donohoe to give a full account of what he knew, when he knew it and what his role has been in permitting these sales to go ahead.”