Exactly five years ago today, RTÉ broadcast The Great Irish Sell-Off, a television documentary I presented detailing how a small number of global financial titans and vulture funds had acquired close to €200 billion of distressed Irish debt.

It was a colossal sum, and it was without parallel. Vulture funds were active on the east coast of the US and in Spain, and we travelled to both countries to document the impact the funds were having there. But the scale of investment in Ireland was on a completely different level. It was essentially the greatest transfer of property ownership in Ireland since the Land League.

The funds were enticed and welcomed here by the government. And, in truth, the sheer wall of capital that crashed upon Irish shores helped stimulate Ireland’s embattled economy. But the more we probed, the more we realised how thoroughly unprepared the country was for the funds, and how utterly prepared the funds were for Ireland.

Regulation veered between light-touch and non-existent. Plus, using canny accounting techniques designed for something else entirely, the funds were able to make vast sums without paying tax. We commissioned experts at the UCD School of Social Policy to examine 24 subsidiaries of funds that were active in the Irish market. We could have gone further, but the exercise was designed to highlight the scale of the tax that was being lost.

The findings were sobering. Despite controlling distressed property assets of almost €20 billion, the 24 subsidiaries had just €20,000 in corporate tax between them. UCD estimated that the state had lost out on between €250 million and €350 million a year in tax revenues between 2014 and 2016. Most of the firms were paying between €75 and €250 a year in tax.

The law was subsequently changed to ensure that the funds were unable to game the Section 110 tax structure.

But the funds, aided by their army of professional advisors, found other ways of eroding their tax bills. This is not surprising; when one loophole closes, accountants and lawyers are quick to find another one.

In many cases, the new loophole has centred on intercompany debt and management fees. Last week, Thomas reported on a Dublin vehicle established by Cerberus to acquire property-backed debt with a face value of £1.4 billion in Northern Ireland.

It is worth focusing on a couple of salient points from his investigation. Cerberus paid £155 million for the portfolio, with the money coming from Dutch holding companies in the form of intercompany loans. Cerberus put up £1 in actual equity for the deal. The rest was debt.

Some of the loans were interest-bearing at 4 and 9 per cent interest. Based on their success at managing the portfolio, they had repaid these loans within a year. The rest of Cerberus’s interest in the portfolio was through a profit-participating loan designed to convert any annual gains into interest due to its Dutch office.

Much of the increase relates to the warehousing of intellectual property in Ireland, with the money due in return classified as intercompany debt.

The company is now winding up. But over its lifetime, it made intercompany debt payments to £245 million back to Holland, plus £11.4 million in management fees. All told, the Dublin company made a 63 per cent return on its investment, booking a gain of around £100 million.

So, just how much tax did it pay? As a proportion of all pre-tax profits, its effective tax rate appears to be 40 per cent, but after deduction of interest and fees, there was very little profit. As a proportion of the £100 million returned in interest and fees, tax paid here was 0.6 per cent.

Essentially, Cerberus loaded an Irish company with high interest-bearing debt, and then pay down that debt over a period of years. There is no tax on profits because all the profits are flushed out in interest bills and management fees.

Vulture funds are not the only ones using this structure – or structures like it. When InfraVia Capital Partners, a €4.8 billion fund, acquired the Mater Private hospital group from Harbourvest, a Capvest-managed fund, in 2018, it funded the deal through a mix of intercompany debt and bank loans. The interest bill for the bank debt totalled €4.2 million in 2020. However, the bill in intercompany debt – paid to a Dutch group company – hit €29.4 million last year.

On an operating level, the Mater Private was profitable, posting an operating surplus of €7.4 million. However, between write-downs of goodwill and interest bills, the €7.4 million operating profit turned into a pre-tax loss of €47.4 million. This has created a massive tax credit for the cashflow-positive private hospital operator. (It also triggered a legal action when the HSE refused to pay the intercompany interest bill for the period it controlled the hospital during the first Covid lockdown).

There are lots of other examples, such as the structure used by Henderson Park to acquire Green REIT. Another variant is the green jersey tax scheme, whereby multinationals move valuable intellectual property to Ireland. In this case, the IP is amortised over a number of years, something that reduces taxable profit, while the Irish subsidiary repays corresponding intercompany debt back to the parent. An Irish subsidiary of Dell, for example, used their strategy to repay $4 billion back to its US parent while not paying any tax here.

The green jersey structure was invented in response to the end of its double Irish predecessor, in which profits arising from the exploitation of IP arose in tax-free jurisdictions, mostly in the Caribbean. Now some multinationals have established new channels whereby, while IP and taxable profits are now declared in Ireland, intercompany debt repayments again surface on sandy beaches – such as those of Silicon Valley software firm Twilio, which are paid from its Dublin office to Bermuda.

The scale of intercompany debt is staggering. The most recent numbers we have date back to the end of 2019, but they still tell their own story.

In 2013, so-called foreign-owned non-financial corporations had debt of €0.5 trillion, mostly owed to group companies. In 2015 this surged to €0.9 trillion, a rise arguably largely attributed to Apple locating intellectual property here. By the end of 2019, the figure had spiralled to €1.5 trillion. Again, much of the increase relates to the warehousing of intellectual property in Ireland, with the money due in return classified as intercompany debt.

By comparison, the debt of Irish-owned non-financial corporations rose from just €0.5 trillion to €0.6 trillion between 2015 and 2019.

It is worth pointing out that all these strategies are perfectly legal. And they are commonly used. In many cases, they have increased the relationship between multinationals and Ireland, something that in turn has increased the corporation tax take.

But it also highlights the duality of the tax system; a system where larger and richer corporations can employ the best accountants to reduce their tax bills. After all, what does it say when a vulture fund that paid an effective tax rate of 0.6 per cent on a £100 million gain?