Ian and Richard Livingstone, the British owners of one of the largest property groups in Europe, used structures in Ireland and Luxembourg when putting in place the tax strategy for their global investments, documents show.
In recent times the brothers have bought the Four Seasons Hotel in Dublin and the Eircom buildings in Citywest.
Advanced tax agreements were negotiated by PwC Luxembourg with local tax official Marius Kohl in 2009 and 2010. The agreements allowed the Livingstones to reduce their tax bills in Ireland and Luxembourg.
The Livingstones, shareholders in the London & Regional Properties Group, were setting up a new corporate structure involving an Irish “qualifying investor fund” and would in turn own a Luxembourg resident company, the PwC accountants explained in a 2009 letter to Mr Kohl.
The Luxembourg company would own an Irish company that would operate under a designated Irish tax regime (the section 110 regime). The Irish company could charge its funding and other costs against tax and would have a low tax burden.
Tax-deductible
The Luxembourg company would put funds into the Irish company by way of profit participation instruments, financial constructs that would be treated as equity for Luxembourg tax purposes and debt for Irish tax purposes.
The consequence of this would be that the payments made by the Irish company to the Luxembourg one would be tax-deductible in Ireland (where they would be designated as interest payments), but would not create a tax charge in Luxembourg (where the income would be treated as tax exempt dividends).
The tax consequences of the structure were approved by Mr Kohl in September 2009.
In March 2010, PwC wrote again to Mr Kohl saying the Livingstones intended investing up to €200 million through the Luxembourg/Irish scheme and were adding new Irish and Luxembourg companies to their structure.
In the letter the accountants said that as a company borrowing funds in the marketplace would “normally incur interest expenses on its borrowings”, the new Luxembourg company would be allowed to “deduct deemed interest expenses” in relation to an interest-free loan to be received from the new Irish company.
The structure would be arranged in such a way that a minimum net profit margin would be reported by the Luxembourg company and taxed.
Mr Kohl agreed with the tax analysis of the transactions outlined in the PwC letter.
The accounts for Luxembourg company SRE Portfolios Luxembourg for the year to the end of October 2012 show the company, which had no employees, had loans and equity investments in affiliated undertakings totalling €197 million at year’s end, and was the recipient of an-interest-free loan of €147 million from the Livingstone brothers.
The affiliated undertakings included at least three Irish companies, Strategic Investments Portfolios Ltd, SRE Dublin Properties (ENMC) Ltd (which bought the Eircom building for €20 million) and SRE Dublin Properties (Ballsbridge) Ltd. The latter owns and operates the Four Seasons Hotel.
Strategic Investments is a section 110 company based at the offices of Dillon Eustace solicitors on Sir John Rogerson’s Quay in Dublin. In the year to the end of October 2012, it had a turnover of €16.9 million and a pre-tax profit of €9,000. The company had financial assets at year’s end of €168 million and cash in the bank of €21.6 million. Financial liabilities were almost exactly the sum of these two. The company had no employees.
Notes to the accounts record that the company entered into a profit participation instrument with Strategic Portfolios Luxembourg in January 2010 for a maximum principal amount of €200 million.
They also note that the financial assets of the company include a loan of €17.7 million to SRE Dublin Properties (Ballsbridge), with an interest rate of 8 per cent per annum, and a loan of €6.5 million to SRE Dublin Properties (ENMC) with an interest rate of 13.04 per cent. The financial liabilities include a profit participating loan of €184.9 million.
A spokesman for London & Regional Properties said the Luxembourg tax agreements were never acted upon. Asked about the audited accounts for the Luxembourg company, SRE Portfolios Luxembourg, he said on Thursday he would have someone from PwC contact The Irish Times to explain it. However, no such contact had been received.
