Dies ist eine HTML Version eines Anhanges der Informationsfreiheitsanfrage 'State aid NN 30/2009 (ex N 660/2008) - request for documents'.




Ref. Ares(2013)697534 - 15/04/2013
Ref. Ares(2014)69823 - 14/01/2014
 
Sraid Mhuirfean Uacht,
Upper Merrion Street, 
Phone:  353-1-6767571
 
Baile Atha Cliath 2,  
Dublin 2, 
 
Fax:      353-1-6318089 
 
 
 
 
Ms Blanca Rodriguez Galindo, 
Head of Unit,  
State Aid: Cohesion, R&D&I and Enforcement, 
Regional aid, 
European Commission,  
Competition DG. 
 
1 April 2009 
 
Subject: State aid N 660/2008 – Ireland – LIP – Hotel Capital Allowances in 
respect of the Ritz Carlton, Powerscourt, Co. Wicklow.  
 
 
Dear Ms Rodriguez Galindo,  
 
I wish to acknowledge receipt of your letter of the 19th of February 2009 in relation to the above-
mentioned matter and welcome the fact that the Commission has granted 10 extra working days 
for the issuing of this reply.   
 
Before addressing the specific questions which you have raised in your letter I would like to 
clarify an important point in the introductory paragraph of your letter.  You state that the Irish 
authorities notified on the 19th of December 2008 “their intention to grant regional aid under the 
Guidelines on National Regional Aid 2007-2013 to Ritz Carlton…
” . While the Irish authorities 
are notifying this aid under the Regional Aid  Guidelines 2007-2013 it should be pointed out that  
the “aid” in question is aid already granted rather than aid to be granted, in the sense that all the 
legal rights to receive the aid  were fully conferred on the beneficiaries by the 31st of December 
2006.  
 
As pointed out in the notification: 
 
(i) 
The original planning permission was granted for the development as long as ago as 
1999, the deadline for full planning permission being 31 December 2004;  

(ii) 
Construction work on the project commenced in January 2005 and concluded in 
October 2007. The tax relief was reduced to 75% for expenditure incurred in 20071;  
(iii) 
The Hotel opened for business in October 2007.  
(iv) 
The project satisfied all of the transitional arrangements laid down in the 
Commissions decision N832/2006 and was cost determined by the 31st of December 
2006 including:  
 
-  Certification of the 15% condition of the local authority; 
-  Certification of the estimated level of expenditure outstanding as of 31st 
December 2006 – with this certified level functioning as a hard cap or ceiling on 
the level of expenditure qualifying for tax relief post December 2006; 
-  A requirement to have a binding written contract in place by the 31st of July 2006 
under which construction expenditure is incurred. 
 
In this regard, the guidelines on National Regional Aid for 2007-2013 paragraph 105 provides 
that “the Commission intends to apply these guidelines to all regional aid  to be granted after 
31st December 2006.  Regional Aid  awarded or to be granted before 2007 will be assessed in 
accordance with the 1998 guidelines on national regional aid
 .” 
 
It is our contention that the aid  has been granted before the 31st of December 2006 albeit notified 
under the current guidelines.  I believe this is a fundamental distinction and one of which I trust 
the Commission will adopt in assessing the notification. Subject to the Commission deeming this 
aid appropriate and compatible with EC law the only issue is the draw-down of the aid  as 
distinct from the grant of the aid .  I believe the Commission will fully appreciate that where aid  
is granted in the form of accelerated tax relief over a number of years that the draw down does 
extend beyond the period for the grant of aid  being in this instance the 31st of December 2006. 
 
We note the Commission’s observation that the notification is seriously incomplete and has 
raised a series of questions which I trust that this letter and the Exhibits attached will 
comprehensively address. 
 
1. 
The Application of the RAG 2007-2013 to the Investment Project in Question  
 
It is fully acknowledged that under the new Regional Policy Guidelines 2007-2013 no new 
regional aid  can be granted for investment projects located in the Mid-East sub-region of 
Ireland. However, as stated above, it is not the intention of the Irish authorities to grant new 
regional aid  in this region.  What is at issue here is a project which has qualified for the Capital 
Allowances Depreciation Regime for Hotels in Ireland by virtue of State Aid N832/2000 and 
state aid N232/2006 on Capital Allowances Depreciation Region for Hotels in Ireland and the 
transitional extension to that regime respectively.   
 
                                                            
1 In accordance with 2.3.2 of State Aid Notice 232/2006. 
 
2
 

The issue is not the granting of new aid  but rather the belated notification of “aid ” in the form 
of tax relief which investors had qualified for prior to the 31st of December 2006.   
 
As to why the present notification was submitted to the Commission in December 2008 this can 
be easily explained.   
 
The normal procedure with regard to tax reliefs is that if investors qualify for relief under any 
scheme they benefit by virtue of fulfilling the conditions set out in the Finance Acts, which 
would normally provide for such reliefs.  The implementation and draw-down of the benefits 
would be a matter between the investors and Irish Revenue.  Individual hotel projects, in respect 
of which tax reliefs are claimed would not necessarily come to the attention of the Department of 
Finance or indeed any other department,  while such tax regime was in place.   
 
In relation to the Capital Allowance Scheme for Hotels, as approved by the Commission, no 
issue of notification to the Commission would arise, except in the case of large projects under the 
Regional Aid Guidelines.   
 
In relation to the Ritz Carlton project the advisors to the investors in this project, KPMG Dublin, 
did not consider, notwithstanding the size of the project, that State Aid  arose or that a State Aid  
notification to the Commission was required.  For that reason they did not bring the project to the 
Department’s attention until last year. They were of the view that the project in question 
comprising as it does of a minimum of 3 separate projects and that each of these projects fell 
below the notification thresholds of the framework and Regional Aid Guidelines provisions for 
large projects.  
 
On examination of the nature of the project the Department, as a precautionary measure and to 
ensure full transparency with the Commission, took the view that the project could be considered 
as one indivisible economic unit and that splitting the project into 3 may be construed as 
artificially dividing what would otherwise may be regarded as a large project, and decided that 
the matter should be notified to the Commission.   
 
Since the Regional Aid Guidelines of 1998 had lapsed and the only guidelines for national 
regional aid  in being where those for 2007-2013 the decision was made to notify the 
Commission and to do so under the new guidelines.  
 
2. 
Beneficiaries of the Notified Aid   
 
The Commission states in its letter that according to its decision in N232/2006 (ex no. 
N832/2000) “beneficiaries under the Scheme are large companies”.  The full sentence in that 
letter of approval states that the “beneficiaries under the Scheme are large Companies, because 
in relation to small and medium sized enterprises Ireland employs the exemption regulation for 
SME
”. Accordingly, the scheme does not preclude small enterprises or individuals from 
receiving aid under the Capital Allowances Depreciation Regime for Hotels in Ireland. In the 
present case there is in fact one company Carrylane involved in this project which is 100% 
owned by a large company Treasury Holdings and therefore it could not be regarded as an SME. 
 
3
 

In any event, any suggestion that small and medium enterprises would be precluded from the 
benefits of the Irish tax regime on hotels would constitute discrimination and be contrary to the 
general principles of EC law and Irish Constitutional law.   
 
 
Le Levant  
 
We welcome the fact that the Commission has drawn our attention to its decision of the 20th of 
May 2008 on state aid implemented in France for building the cruise vessel Le Levant.   
 
We believe once the Commission has examined the information in this letter and the 
documentation attached that it will conclude that the Ritz Carlton project is similar to the Le 
Levant project in both attracted investors through a tax scheme.   
 
As in the Le Levant case the individual investors activity, in the present case, is limited 
essentially to an investment aimed at making a return, with no real participation in the hotel’s 
operation.2 
 
Carrylane may be regarded as in a similar position to CIL in the Le Levant case, and only it can 
be classified as an undertaking3 under Article 87.1 of the Treaty4.  As the individual investors are 
not undertakings in this sense, the benefits that they have obtained through state resources under 
the Ritz Carlton financing arrangements do not constitute State Aid5.  
 
When one examines the development component6 of the Ritz Carlton project I believe the 
Commission can be satisfied that the aid to Carrylane has contributed substantially to the 
regional development of the Mid-East region and can reasonably conclude that the aid is 
proportionate to the regional development benefits and thus compatible with the common 
market. 
 
The  construction  of  the  hotel  and  its  continuing operation have generated significant levels of 
economic activity and development. In additional employments terms alone 350 predominantly 
full time positions have been created at the hotel. The construction of the hotel generated 
between 450 and 500 full time construction posts. The hotel is now among the largest employer 
in County Wicklow. The hotel will be important in firmly anchoring north County Wicklow as a 
long stay  tourist destination whereas previously the county  primarily attracted day  visitors with 
little real economic spin off to the locality. 
 
Accordingly, due to the high level of employment created and the enhancement of the tourist 
potential of the area, the Irish authorities are of the opinion that the level of aid granted is 
                                                            
2 Le Levant paragraph 102  
3 Apart from one of the individual investors who incorporated 
4 Le Levant paragraph 103 
5 Le Levant paragraph 103 
6 Le Levant paragraph 125 
 
4
 

proportionate and well targeted at overcoming barriers to investment in high quality hotel 
development in the rural area concerned and thus conforms with the aim of the capital allowance 
scheme which was to promote regional development. 
Our estimate of the value of the "advantage" , if any, conferred on Carrylane is set out in the  
responses to Q6(c) below and is effectively about €5.4m being the benefit derived from the buy 
back arrangements entered into between the Exhort Co-ownership and Carrylane/Treasury 
Holdings i.e. €21m, less the tax value of the capital allowances foregone by Carrylane of €10.8m 
(i.e. €86.6m spend by Corporation tax rate of 12.5%), less stamp duty on buy back of €4.8m (i.e. 
€80m buy back price * 6% stamp duty rate) such that €21m - €10.8m - €4.8m = €5.4m. Further 
costs of acquisition could be deducted from this to arrive at the final estimated benefit.  
 
3) In the notification it is said that the hotel is owned by 62 separate entities. What is the legal 
form of this joint-ownership? Does the structure of the joint-ownership allow the investors be 
effectively involved in the operation of the hotel? Is the investors’ activity limited to an equity 
holding aimed at making a return, with no real participation in the hotel’s operation? The 
Irish authorities are requested to provide a copy of the joint ownership articles of 
association/agreement. 

 
 
The hotel is fully owned by three categories of investors constituting 62 separate entities 
for the purposes of the notification. Schedule 1 sets out in diagrammatic form a summary 
of the various ownership interests and legal agreements between the parties.  The 62 
entities co-own the full interest in the property, however there is no single joint ownership 
vehicle. 
 
The structure of the 62 entities (together referred to as the “Investors”) is as follows:  
 
(i)  60 independent investors in the hotel suites (the “Suite Investors”) who have each 
acquired a full ownership interest in one or more hotel suites. 
 
(ii)  The Exhort Co-ownership which is a group of investors constituting 156 unconnected 
private individual passive investors and one passive corporate who own the hotel 
common areas and 20 hotel suites. We attach as Exhibit A the Co-ownership & 
Agency Agreement dated 31 January 2007 which sets out how the members of the 
Exhort Co-ownership regulate certain aspects of their ownership. This agreement 
permits members of the Exhort Co-ownership to dispose of their interest in the hotel 
property at any time. 
 
(iii) The final owner is Ilesca Limited which is a subsidiary of Treasury Holdings but is a 
temporary owner of the unsold hotel suites pending their resale to new independent 
investors, when sourced. While Ilesca Limited is included in the list of aid 
beneficiaries for completeness purposes, Ilesca will not be claiming capital allowances 
in respect of the property, it is merely a temporary owner pending sale of the suites to 
third party investors. 
 
 
5
 

The ownership structure neither envisages nor allows the Investors to be involved in the 
operation of the hotel.  The Investors’ activity is limited to an investment holding aimed at 
making a return with no real participation in the hotel’s operation.  We have set out in the 
attached List of Exhibits, a list of the relevant clauses in each of the agreements, which 
confirm that the Investors have no involvement in the hotel’s operation.  
 
Exhibits B to D contain the various ownership agreements which the Investors have 
acquired from Carrylane (as developer). The ownership interests are each by way of long 
leases of 999 years or more. 
 
The Investors in the present case hold an interest in the property from which they derive 
rental income.  
 
(4)   Please describe in more detail the hotel operator Carrylane Limited. According to the 
information provided in the notification, Carrylane Limited constructed the hotel and is 
100% owned by Treasury Holdings. Ilesca Limited, which is presented as one of the 
owners of the hotel (and beneficiaries of the aid) is a 100% subsidiary of Treasury 
Holdings. 

 
 
Carrylane (a 100% subsidiary of the developer Treasury Holdings) was incorporated to 
acquire the lands at Powerscourt, develop the hotel and ultimately run the hotel.   
 
Carrylane acquired a 10,000 year lease of the undeveloped hotel site from a third party, it 
entered into building agreements to have a hotel built on the site and sold the entire hotel 
by way of long leases of 999 years or more (see Exhibit B, C and D attached) to the 
various Investors discussed above, realising revenue from the various sales.   
 
In its capacity as hotel operator it leased back the development under a series of 
occupational leases (see Exhibit F and G attached) lasting in excess of 40 years, enabling it 
to run the hotel as operator.  
  
Ilesca Limited (also a 100% subsidiary of the developer Treasury Holdings) was 
incorporated to acquire unsold hotel suites on a temporary basis. Those hotel suites are 
currently being marketed for sale to new third party investors. As noted at 3(iii) above 
Ilesca Limited will not be claiming capital allowances in respect of the property.  
 
(5)  Please give details about the terms and conditions of Carrylane Limited's management 
agreement with the Ritz Carlton Hotel Group. The Irish authorities are requested to 
provide a copy of the management agreement. 

 
 
Ritz-Carlton Hotel Group is an independent third party involved in the operation and 
management of hotels.  Carrylane has entered into a management agreement (See Exhibit 
 
6
 

E7 attached) with Ritz-Carlton Hotel Company B.V (“Ritz-Carlton”) to enable Carrylane to 
carry on its hotel operations using the Ritz-Carlton brand and employing Ritz-Carlton as 
hotel manager.  Carrylane is required to fund hotel operating losses and costs and Ritz-
Carlton is paid an arms length fee for its management operations.  It is not an owner or the 
developer of the hotel. We have set out in the attached List of Exhibits a further list of 
some of the key clauses from this agreement. 
 
Carrylane has effectively delegated the day to day management of the hotel to Ritz-Carlton; 
however it (and not Ritz-Carlton or the Investors) carries all risks and rewards regarding 
the operation of the Hotel. 
 
(6)  
Please provide details about the terms and conditions of the leasing agreement between 
 
the investors (owners of the hotel) and the hotel operator Carrylane Limited, in 
 particular: 
 
 
 
The hotel is independently owned by the Investors under long leases of 999 years or more 
and is let back to Carrylane under operational lease arrangements (see Exhibit F and G) 
in excess of 40 years.  
 
(a) What do the investors and Carrylane Limited get as a return? 
  

Carrylane will earn a return from operating the hotel as the operating profits (if any) 
accrue to it.  The Investors do not contribute to operating losses or costs at the hotel.  
The Investors earn a return through claiming capital allowances granted on hotel, 
through earning rent from Carrylane and through intended capital appreciation in the 
value of their asset over the period of ownership. The Suite Investors receive a fixed 
rent for years one to seven and thereafter their rent is based on a percentage of 
average room revenue. Further details of the rent payable to the Investors are 
contained in Exhibits F and G.  
 
(b) Is it foreseen in the agreement that Carrylane Limited can become an owner of the 
hotel at the end of the period of the operation of the hotel? 
 
Other than the arrangement discussed in more detail at (c) below, it is not foreseen 
that Carrylane would become owner of the hotel.   Each of the Suite Investors have 
acquired a 999 year lease over their hotel suites out of which they have granted 
occupational leases in excess of 40 years to Carrylane. 
  
There are no arrangements in place whereby the Suite Investors must sell their hotel 
suites back to Carrylane. Carrylane has disposed of its legal interest in these hotel 
suites to the Suite Investors each of whom holds a property interest in his hotel Suite.  
                                                            
7  We would re emphasise that the operating agreement attached as Exhibit E contains business secrets/commercially sensitive 
information and should be covered by the obligation of professional secrecy.  
 
7
 

It was a term of each sale that each Suite Owner must lease their hotel suite back to 
Carrylane as hotel operator for the duration of the occupational lease granted to 
Carrylane.  At the termination of each occupational lease, possession of each Suite 
will revert to the Suite Owner unless Carrylane avails of its statutory rights as a 
business tenant to renew the occupational lease.  
 
(c)  Could it be considered that the tax benefit is partially transferred to Carrylane 
Limited, for instance, through a reduction in the rent charged during the operating 
period? 

 
Carrylane, as hotel operator has agreed arm’s length arrangements with the Investors.  
These rents are based on market yields for commercial property based on the 
Investors’ net acquisition costs of the property for the first 7 years and thereafter 
based on arm’s length room revenue.  Carrylane does not benefit from reduced rental 
arrangements, during the circa 40 year plus operating period nor does it receive any 
contribution to its operation costs from any of the Investors.  
 
Ireland would say that that, the arm’s length and market based nature of the rental 
arrangements between Carrylane and the investors,  tends to exclude the possibility of 
any “reduction in the rent charged during the operating period”, and so no issue of 
the partial transfer of the tax benefit arises.  
 
Under the arrangements entered into with the Exhort Co-ownership, Carrylane has 
effectively sold its entitlement to tax allowances to the Exhort Co-ownership through 
a mechanism whereby the Exhort Co-ownership purchased their property from 
Carrylane for €101m but have agreed to enter into a put and call option to return the 
property to Carrylane’s parent, Treasury Holdings for €80m in seven years time.   
 
There is no guarantee that the market value of this element of the hotel will be circa 
€80m in seven years time and hence it is unclear that this buy back price represents a 
real benefit (as opposed to an onerous obligation) to Carrylane/Treasury Holdings. 
 
The above arrangements involve Carrylane having received a gross premium of €21m 
in exchange for passing on its tax allowances to the Exhort Co-ownership at a cost to 
Carrylane of €10.8m plus associated costs including stamp duty on the repurchase of 
circa €4.8m. 
 
Notwithstanding this buy back, the Exhort Co-ownership are the claimants of all the 
capital allowances in relation to this aspect of the hotel. The Exhort Co-owners are 
not obliged to reintroduce their tax savings to fund the ongoing operations of the hotel 
and nor have they done so. 
 
(d) The Irish authorities are requested to provide a copy of the leasing agreement. 
 
 
The lease agreements are attached as Exhibits F and G. 
 
 
8
 

(7) Please indicate who bears the sole responsibility for the commercial activity of the hotel. 
Do the investors run any real risks in respect of the hotel's operating results? 
 
(7) 
Carrylane bears sole responsibility for the commercial activity of the hotel.  The Investors 
do not run the risk in relation to hotel operating results.  We have set out in the attached 
List of Exhibits a list of the relevant clauses in each of the agreements which confirm that 
the Investors have no involvement in the hotel’s operation.  
 
(8) Please provide details on the management mandate/operating activities of Carrylane 
Limited, in particular whether Carrylane Limited is responsible for all aspects of operating the 
hotel and has all the necessary powers, so that the investors cannot interfere in its operation in 
any way: 
 
(8)  Carrylane is ultimately responsible for the operation of the hotel albeit that it has, as 
discussed at point 5 above, sub-contracted or delegated a significant number of the related 
functions in full to Ritz-Carlton. Under the terms of the operating agreement entered into 
between the two parties. This is discussed in more detailed below. As referred to above, the 
Investors cannot interfere in any way with the operation of the hotel.  
 
(a) Is Carrylane Limited responsible for technical and commercial management of the 
hotel? 
 
 
Yes, Carrylane, is primarily responsible for the technical and commercial 
management of the hotel which it has sub-contracted to Ritz-Carlton  under the terms 
of the operating agreement entered into between the two parties. The management of 
the hotel is governed under Article 2 of the agreement and in particular Article 2.1(j) 
allows the manager of the hotel to enter into agreements on behalf of Carrylane once 
the agreement is approved by Carrylane. See Article 2.1 of Exhibit E.   
 
(b) Has Carrylane Limited full powers with regards to the staff recruitment and 
management? 
 
 
 
Yes, Carrylane, has primary responsibility for staff recruitment and management 
which power it has delegated in full to Ritz-Carlton , under the terms of the operating 
agreement entered into between the two parties. See Article 2.6 of Exhibit E. 
 
(c)  Has Carrylane Limited full powers to manage the joint-ownership’s property and 
business and can carry out all tasks relating to administration, including laying-up 
(terminate operation) of the hotel? 

 
 
 
Yes. Carrylane, has the power to manage the property and business and carry out all 
tasks relating to administration, including laying-up (terminate operation) of the hotel 
primary. However any such decision could only be made within the context of the 
commercial arrangements which Carrylane has entered into with the Ritz-Carlton 
Hotel Company B.V. under the terms of the operating agreement. See Article 4 of 
Exhibit E. 
 
9
 

 
(d) Is Carrylane Limited authorized to conclude all the contracts and commercial 
transactions? 
 
 
Carrylane, is authorised to conclude all contracts and commercial transactions albeit 
that Carrylane has delegated this power to Ritz-Carlton under the terms of the 
operating agreement or alternatively Carrylane must obtain the consent of  Ritz-
Carlton before finally concluding such contracts. The performance of the hotel is 
monitored through monthly meetings between Carrylane and Ritz-Carlton. 
 
We have set out in the attached List of Exhibits a list of the relevant clauses addressing 
items (a) to (d) above.  
 
CONCLUSION 
 
We welcome this opportunity to clarify matters in relation to this specific project and would 
request a meeting to discuss the matter before the Commission Services comes to a final decision 
on the matter. 
 
Yours sincerely,  
 
Derek Moran,  
Assistant Secretary.  
Budget, Taxation  
and Economic Division.  
 
 
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