There has been extensive media coverage of the reported misuse of charitable funds by Paul Kelly, the founder and chief executive of Console, the suicide bereavement organization.
Outrage has also been expressed about the fact that senior managers at the St John of God’s charity received top-up bonus payments that appear to have been in breach of public-sector regulations – at a time when the charity’s services to special-needs children were being cut.
But less coverage has been devoted to a rather more incongruous usage of registered charities: their facilitation of tax avoidance by, in particular, “vulture funds” that have been buying up distressed debt (including residential mortgages) in Ireland and pursuing its repayment in full.
Social Democrat TD Stephen Donnelly has highlighted how vulture funds are being granted so-called Section 110 status, which allows them to minimize their tax bills, despite the fact that this status is only supposed to apply to entities making their profits abroad.
For example, Donnelly has focused on Mars Capital, which he says bought Irish Nationwide mortgages (at a substantial discount) and earned €14 million in Ireland in its first year of operation. Its total tax bill that year? €250.
In a previous column, I wrote about how one vulture fund – Beltany Property Finance – that was seeking to evict people from a housing estate in Tyrrelstown in west Dublin held €1 billion in assets here at the end of 2014, but, like Mars, paid tax of just €250.
In similar vein, Cerberus, the company embroiled in the Project Eagle/NAMA controversy, paid tax of just €15,000 in 2014 – on income of €350 million.
Donnelly estimates that such maneuvering could end up seeing the state lose €20 billion in potential tax revenue over 10 years.
So where do the charities come in?
Remarkably, Donnelly reports that Mars is owned by a children’s charity, the Matheson Foundation, administered by the Matheson law firm.
Matheson (which is behaving entirely legally) is described on its website as “The law firm of choice for internationally focused companies and financial institutions doing business in and from Ireland.”
According to Donnelly, charity ownership confers various advantages on Section 110 companies, perhaps most importantly that Irish charities are immune from bankruptcy.
The significance of this last point is evident from the Irish activities of a firm outside the property sector, namely Britain’s biggest weapons company BAE Systems, as documented by Nick Webb in the Sunday Independent.
BAE has an Irish subsidiary called Trident Aviation Holdings, all shares in which are owned by the Arbutus Homeless Person’s Trust, an officially registered charity. Arbutus, in turn, is run by high-profile Dublin law firm A&L Goodbody.
BAE has made no donations or dividend payments to Arbutus. Webb reports that BAE made use of Arbutus because it reassured US investors that BAE itself was “bankruptcy-remote”, with the Irish subsidiary having no claims on the overall group assets.
A senior Revenue Commissioners official has reportedly voiced concerns about whether the charities regulator should be allowing “that sort of set-up”, i.e. the usage of charitable status for the purposes of minimising liabilities (including tax).
Donnelly has, reasonably enough, suggested that charitable status should be withdrawn in such circumstances. Government Minister Richard Bruton has responded that “if there are abuses that need to have legal loopholes closed, I have no doubt [Revenue] will be swiftly moved to do that”.
But these schemes have been known about for years. As I have previously written about for Dublin Inquirer, the Department of Finance, especially, has been bending over backwards to lure vulture funds to Ireland. Did they not know about their tax avoidance strategies? Or did they not care?
More broadly, Sinn Fein’s Pearse Doherty accurately describes successive governments having “created a culture and laws which not only facilitate but encourage the avoidance of tax by those with the ability to access the legal expertise to do so”.
The misappropriation of public donations to charities, like Console, is a serious problem. But the scale of the resource diversion involved is dwarfed by the entirely legal tax-avoidance strategies being pursued by wealthy corporations.
The tax monies thus foregone could fund all the suicide-support and special-needs services we need, and render private charity redundant.