Caribbean investment gets tax relief

Investment relief: A company used a tax break designed to boost investment in the Republic to get over €300,000 a year in relief on a €15 million investment in the Caribbean.

According to the Budget 2006 review of tax schemes, a break that allows people to claim relief on interest on loans taken out to invest in companies and partnerships, is mainly benefiting lawyers, accountants and other professionals, but has not created extra jobs.

The relief was designed to encourage people to invest in businesses in the Republic when it was introduced in 1974. But it also allows them to claim the relief where the investment is in property that will generate income from rents.

The review shows that a group of 18 investors borrowed a total of €15 million, which they then used to buy an un-named company in the British Virgin Islands, a tax haven in the Caribbean.

That company in turn used €225,000 to buy a 25 per cent share in an Irish property from which it was earning €22,5000 a year in rent. It used the balance of the €15 million to invest in subsidiaries, which in turn placed the cash in various ventures abroad.

The company is paying tax on its rental income at €5,625. But because its investors borrowed the cash it used to set up in the British Virgin Islands, it is claiming relief on the €750,000 interest bill it is paying on the €15 million.

At 42 per cent, that comes to €315,000, which means that the structure is costing Irish taxpayers €309,375.

The report states that the whole transaction is probably structured to ensure that the Irish company never has any income beyond the small rent figure.

The report says that there is no evidence that the relief has boosted jobs. It recommends abolishing or curtailing the scheme. Ending it completely would save the exchequer €17 million.