An Irish arm of a major vulture fund paid just €500 tax on millions in profits last year
Another Irish Lone Star subsidiary, which had income of over €700m, paid €4m in tax.
AN IRISH ARM of ‘vulture fund’ Lone Star paid just over €500 in corporate tax last year despite recording a profit of €15 million.
The US private equity giant specialises in buying up distressed assets and selling them at a later date once they are performing again.
It was one of the major private equity firms that acquired huge loan books from both the banks and Nama after the financial crisis.
New accounts just filed for one of its Irish subsidiaries, Lone Star International Finance Holdings Ireland, show that the company recorded net income of $18.5 million in 2016.
When operating expenses of just under $1 million were subtracted, the firm recorded a profit of $17.6 million (€15 million) during the year, up from $11 million in 2015.
Corporate tax
Some $14.7 million of this derived from a net unrealised gain in the value of its assets. The company’s assets were valued at $138 million as of the end of 2016.
The remaining $3.8 million was sourced from a dividend paid to the company by another Irish Lone Star vehicle.
However the firm paid just over €500 in corporate taxes, mostly due to the fact that the bulk of the reported profits derived from an increase in asset values.
As these profits had not been ‘realised’ – that is, the assets weren’t sold – the profits only appear on paper and are not liable to be taxed.
The other major chunk of the profits, the $3.8 million dividend, was not taxed because it was classified as ‘franked income’, where a dividend is received by an Irish resident company from another Irish resident company.
As a result, none of the company’s income for the year was taxable. The firm did pay a tax charge of $680 (€574), however this related to an accounting provision from the previous year.
Although it did not specify the source of the dividend income, it is likely that at least part of it may have come from one of Lone Star’s other main Irish subsidiaries, Lone Star International Finance.
Other Irish subsidiary
New accounts filed for Lone Star International Finance Ltd, which has its registered office in Dublin, show that it paid out a dividend of $6.6 million in 2016. It had reported income of $863 million (€730 million) in 2016.
Some $377.5 million of this related to cash received from its assets. The other major source of income was the $494 million received from a movement in accrued interest on financial assets.
Accrued interest is interest on a bond or loan that has accumulated since the principal investment.
While the firm is registered in Ireland, the director’s report for the firm noted that many of the company’s assets were located throughout Europe. Much of the company’s income likely derives from its European interests, as well as its activities in Ireland.
While the company took in a huge amount of money, it also had huge expenses for “financial liabilities” which amounted to $734 million.
It also had ‘swap interest expense’ of $107 million. Interest-rate swaps are agreements between two companies that are generally made in an effort to lower interest bills. In the Irish company’s case, however, they resulted in a significant increase.
Overall, Lone Star International Finance Ltd made a profit of $8.4 million during the year, on which it paid taxes of $2.1 million. A note in the company’s accounts said it paid $4.5 million in taxes during the year.
Update: This article has been updated to clarify that the tax paid by Lone Star International Finance Holdings was not the only tax paid by Lone Star in Ireland in 2016.
