The draft bill outlines a range of tax provisions which are designed to facilitate the transfer to NAMA and ongoing management of assets by NAMA without triggering tax costs. A significant lacuna in the draft bill is legislation dealing with the tax effect of losses generated by participating banks in transferring the discounted loans to NAMA. It is understood that this issue will be addressed in the publication of the bill in September. Some of the tax aspects of dealing with NAMA as outlined in the draft text of the bill are as follows:
• Income and gains arising to NAMA will be exempt from income tax, corporation tax and capital gains tax.
• Stamp duty will not apply to the sale, transfer, lease or other disposition of property, asset or documentation to NAMA or its affiliates.
• Debt securities issued by or on behalf of NAMA will be subject to the condition that interest on those securities shall be paid without deduction of tax.
• Dividends paid to NAMA will not be subject to Dividend Withholding Tax. This should facilitate the payment to NAMA of dividends from its Irish subsidiaries.
• Interest paid to NAMA will not be subject to Irish withholding tax. Interest paid to Irish banks on loans advanced by them would generally have qualified for an exemption from Irish withholding tax.
• NAMA should be entitled to pay interest without withholding tax to persons resident in EU or tax treaty jurisdictions.
• Deposit Interest Retention Tax (DIRT) will not apply to deposits made by NAMA.
• Relief under the Business Expansion Scheme (BES) will not be withdrawn from investors merely because the company concerned is controlled by, or controls a company which is itself under the control of, NAMA.
• Corporation tax on Capital Gains is not charged where certain assets are transferred between corporate group members with an effective 75% direct or indirect ownership interest between transferor and transferee companies. This form of group relief is extended to NAMA and any other company in which NAMA holds any amount of that company’s ordinary share capital. A clawback of capital gains group relief previously claimed can occur where the transferee company leaves the group with the asset transferred to it within 10 years from the date of acquisition. This clawback will not apply to a “bank asset” (widely defined) transferred intra-group.
• Exit tax (generally at the rate of 28%, but higher rates can apply) will not apply on the maturity, surrender, assignment or other deemed disposal of certain life policies where NAMA is the policyholder immediately before such event and has made the required declaration. Similar exit tax exemptions apply to payments to NAMA as unit holder in certain investment undertakings where the necessary declaration is made.
• Generally, a Capital Gains Tax withholding of 15% of the consideration given applies on disposals of Irish land or shares in a company deriving the greater part of its value from Irish land unless the vendor obtains a clearance certificate (CG50) from the Revenue Commissioners. The enforcement of a debt security can trigger a disposal of property subject to these withholding tax requirements. An enforcement of security by NAMA is not regarded as a disposal for the purposes of the withholding tax. This should facilitate the tax administration associated with such enforcement.
• Most transfers of property to NAMA will be subject to VAT on the reverse charge basis except where the property has not been developed in the previous 20 years or where a legacy lease is being transferred that did not give rise to an input credit entitlement. The sale of residential property by NAMA will be subject to VAT as if NAMA was connected to the developer of the residential property.
• Where banks continue to manage assets transferred to NAMA, they will need to consider if VAT is chargeable on the services provided to NAMA. These activities may currently be carried on by the bank itself in respect of its own assets or purchased by the bank from a VAT group member where VAT on the services is ignored.
• Where shares in a company are acquired by NAMA and as a consequence of that acquisition a charge to tax (capital gains tax, corporation tax or stamp duty) applies due to a clawback of a relief, then the person from whom the shares are acquired must inform NAMA of the charge and the amount of tax due.
• NAMA can outsource its activities and may need to source advice in such areas as accountancy, finance, consultancy and legal services. Professional Services Withholding Tax (PSWT) at the standard rate of income tax (currently 20%) will be withheld by NAMA on payments made to such persons. PSWT can be credited against the service providers’ Irish tax liability. “Professional services” are widely defined for this purpose and the above listing is not exhaustive.
The above tax provisions focus on transfers to NAMA and its subsidiaries. Taxes payable by a person purchasing assets from NAMA (such as stamp duties) still broadly apply. The draft legislation is currently at an early stage. It is anticipated that more amendments are to come before NAMA opens for business.