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
 
 
 
Ms. Blanca Rodriquez Galindo 
Head of Unit 
 
State-Aid: Cohesion, R&D&I and Enforcement 
Regional Aid 
European Commission 
Competition DG. 
 
 
9 October 2009   
 
Subject: State Aid N 660/2008 – Ireland – LIP – Hotel Capital 
Allowances in respect of the Ritz Carlton, Powerscourt, Co. Wicklow. 
 
 
Dear Ms. Rodriquez Galindo, 
 
I wish to express my appreciation for the meeting and discussion on 
Thursday 2 September 2009 with you and your colleagues.  It was useful 
and informative.  I wish to also acknowledge the subsequent email which 
I received from Andras Tari in which he submitted a number of additional 
questions seeking clarification /additional information.  I trust that this 
letter and the Exhibits attached will comprehensively address and serve to 
bring clarity to the questions in your email. 
 
We have numbered the various bullet points contained in the three page 
document received from your services following our meeting of 3 
September 2009 and set out to provide some further background to 
structure.  The structure chart “Schedule 1” which was included on our 
response of 1 April 2009 and attach same as Appendix 1.  Following this 
general information we then provide specific responses to each of the 
questions in numerical order. 

 
We would reiterate our previous comments, that in our view, Carrylane is 
a beneficiary of the aid but only to the extent of the benefit conferred on 
Carrylane under the buy-back arrangements with the Exhort Co-
ownership which we have previously quantified as being circa €5.2m. As 
this figure is below the maximum permitted aid for the Project in NGE 
terms of €20. 376m (Ref: Notification Documentation Dec 2008) no 
restriction should apply. Furthermore, when one examines the 
development component of the Ritz Carlton project we believe that the 
Commission can be satisfied that any aid involved 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 and 
arises under an approved scheme. 
 
The attached responses contain business secrets/commercially sensitive 
information and should be covered by the obligation of Professional 
Secrecy. 
 
Background information relating to questions 1, 2, 4, 5, 6 and 13 
 
Each of the above questions relate to the overall structure of the 
transaction and accordingly we set out by way of further background a 
detailed explanation of how the project was structured from its inception 
right up to hotel opening.   
 
As you will appreciate the project started as a proposal for the 
development of a hotel by the Treasury Holdings Group some 15 years 
ago. 
 
In order to get from the position where the proposal to develop a hotel 
is transformed into a fully built and operational hotel a number of key 
aspects had to be undertaken as set out at (a) to (f) below. Throughout 
the development phase each of these aspects of the project were 
revisited and refined as the transaction progressed. 
 
(a)  Acquisition of a site/piece of land on which to construct the hotel 
property 
 
Carrylane was established by the Treasury Holdings Group as the 
vehicle through which the development would be undertaken. 
Carrylane acquired a green field site from Powerscourt Estates (a 
corporate entity) on which to construct the hotel on behalf of the 
 
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ultimate owners.  This was an arm’s length purchase from an 
unconnected third party.  The legal manner in which this site 
purchase was arranged was by way of the granting of a 10,000 year 
lease over the undeveloped site/land to Carrylane Limited. The 
consideration payable was an upfront capital sum/premium of 
€2.272m and a continuing annual rent of €380k per annum as 
adjusted for price inflation.      
 
 
(b)  Obtaining planning permission from the Irish planning authorities 
to develop the hotel 
 
Carrylane then set about obtaining planning permission to develop a 
hotel on the land and the relevant planning permission was granted 
in 1999.  While planning permission was being obtained and refined, 
Carrylane began evaluating its funding and operational strategy for 
the development of the hotel. 
 
 
(c)  Formulating a strategy for the ownership and commercial 
operation of the hotel 
 
Carrylane and the Treasury Holdings group of companies are 
primarily property developers and investors whereby they construct 
property for outright sale to third parties or for retention and letting 
to third party tenants.  Accordingly the primary intention in relation 
to the Powerscourt Hotel was to construct the hotel for sale to third 
party owners/investors who would then let the hotel to the Hotel 
Operator.   
 
The Group also decided that it would seek a world renowned Hotel 
Group to operate the hotel. 
 
(d)  Obtaining bank funding to construct the hotel 
 
Carrylane received some funding by way of initial deposits under 
the development agreements and lease agreements entered into with 
the Exhort Co-ownership and the Suite Owners (discussed further 
below).  However the remaining balance of the construction and 
development budget was funded by bank borrowings drawn down 
by Carrylane in its own right as property developer, which it repaid 
as and when it received the balance of the lease premiums and 
development contract prices due to it. 
 
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(e)  Identification of potential owners for the hotel 
 
Given the size of the project, two types of ownership interests were 
sold to third party owners/investors.  
 
The first was by way of a legal Co-ownership whereby a significant 
portion of the Hotel was developed for by Carrylane on behalf of the 
Co-ownership and then leased back to the Hotel Operator by the Co-
ownership at a market rent. This group of owners (the Exhort Co-
ownership) were to take ownership of the hotel for the duration of 
the 7 year writing down period of the capital allowances. 
  
The second group of owners were investors who acquired an interest 
in their element of the hotel under a 999 year lease with no buy back 
arrangements. These individuals are unconnected and not legally 
related to each other in any way, but for simplicity they have been 
referred to as the Suite Owners. 
 
The Exhort Co-owners acquired their interest in the land on which 
the hotel was to be built by way of a 9,999 year agreement for long 
lease from Carrylane at an annual rent of €380K per annum with no 
upfront capital sum/premium payable. They then entered into a 
development agreement with Carrylane whereby Carrylane agreed to 
construct their element of the hotel, on the land which they had 
leased, for the agreed price of €101.254m.   The Co-owners are not 
involved in the hotel operations but rather are property 
investors/landlords. 
 
The Suite Owners individually obtained their ownership interest in 
the land/site by way of a 999 year lease for a fixed upfront capital 
sum/premium from Carrylane. This gave them an ownership interest 
in the land on which their element of the hotel was to be built. They 
then entered into a development agreement with Carrylane whereby 
Carrylane agreed to construct their element of the hotel, on that land 
for an agreed price. The development price varied depending on the 
location and size of hotel suites being built for each individual 
investor.  
 
The manner and timing of when the various agreements were 
entered into and completed is as follows: 
•  At the outset, prior to the Hotel being fully developed by 
Carrylane, the Co-ownership and each of the Suite Owners 
 
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signed lease agreements to acquire their interest in the 
underlying land. At this time they placed a deposit relating to a 
portion of the capital sum/premium payable under the leases to 
Carrylane. 
 
•  The development agreements under which Carrylane undertook 
to develop the hotel on behalf of the Exhort Co-
ownership/Suite Owners were signed prior to the development 
of the hotel and initial deposits were also paid at that time in 
the case of the Suite Owners.  
 
•  The balance of the development price and the lease premiums 
were paid when the hotel was built and ready for opening at 
which time the occupational leases were also granted to 
Carrylane in its role as Hotel Operator by the Exhort Co-
ownership and the Suite Owners. 
 
(f) Identification and negotiations with a hotel operator 
 
The typical approach in the hotel industry at the time that this 
transaction was structured was for the world renowned hotel brand 
names to agree to manage and run hotels on a contract basis without 
taking ownership of the underlying property or taking material 
trading risk. 
 
Accordingly Treasury Holdings agreed to have a member of its 
group act as Hotel Operator. For various legal and administrative 
reasons both the seller of the land to Carrylane (i.e. Powerscourt 
Estates) and the Ritz-Carlton Hotel Group insisted on Carrylane 
being the company that was selected to act as Hotel Operator. 
 
Accordingly, Carrylane as Hotel Operator acquired occupational 
leasehold interests in the property from its owners (i.e. the Exhort 
Co-ownership and the Suite Owners) and entered into a management 
agreement with the Ritz-Carlton Hotel Group whereby the Ritz-
Carlton Hotel Group undertook to manage the hotel on Carrylane’s 
behalf.  
 
1. BENEFICIARIES OF THE AID 
 
1. Please provide a step-by-step description of the project from its 
inception until the opening of the hotel (i.e. who initiated the project? 
was it Carrylane who started building the hotel and sought to involve 

 
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third party investors to get the necessary financing or did the 
investors contract Carrylane to build the hotel on their behalf? Did 
the financial contribution of the investors precede the signing of the 
investor lease agreements? etc.) 

 
Carrylane was the entity that initiated the overall project, obtained 
planning permission to build a hotel and commenced building the 
hotel.  During that time Carrylane identified a number of third party 
investors to take ownership of various aspects of the hotel via the Co-
ownership and Suite Owner categories.  These investors acquired 
ownership in the underlying land by way of lease agreements (i.e. the 
Investor Leases) and engaged Carrylane to build the hotel on their 
behalf by way of development agreements. 
 
On signing their respective investor leases and development agreements 
with Carrylane, a small amount of funds were introduced as deposits by 
the various investors as a financial contribution to the project. However 
the majority of funds due under the leases and the development 
agreements were paid when the building work was complete and the hotel 
ready for opening. Accordingly Carrylane funded the remaining cost of 
developing the hotel from its own bank borrowings. This is the standard 
development structure used in Ireland. 
 
2. It appears that some of the beneficiaries were involved from the 

outset and contributed towards the construction of the hotel whereas 
other investors stepped in at a later stage and acquired ownership in 
the hotel. In this respect, do the eligible costs specified by the Irish 
authorities refer to the construction costs or the costs of acquiring 
the ownership (the two are not necessarily the same). Please indicate 
the figures for construction costs, costs of acquiring ownership and 
the eligible costs. 

 
Apart from Ilesca Limited and a small number of Suite Owners, the 
Exhort Co-ownership and all of the other Suite Owners entered into 
their investor lease agreements and development agreements in 
advance of the hotel being fully built.  The Co-ownership and the Suite 
Owners contributed their deposits at the outset with the balance 
payable on completion of the hotel. Carrylane was able to use the 
signed development agreements as security for bank finance to fund 
the construction/development of the hotel. 
 
Ilesca Limited and the other Suite Owners acquired their interest in the 
property at a time when the hotel was fully built and within 12 months 
 
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of the hotel opening (i.e. the then deadline by which they had to 
acquire an interest in the property from Carrylane under Irish tax law). 
 
In all instances the Total Amounts Paid by the various investors are 
made up of (i) the price paid under the development agreements 
entered into with Carrylane to build the hotel on their behalf, and (ii) 
the upfront premiums paid to Carrylane under the Investor Leases. A 
formula set out in Irish tax law which excludes non qualifying items 
(such as site cost) from qualifying amount is then applied to the Total 
Amount Paid figure to arrive at the amount qualifying for hotel capital 
allowances before and after the 75% restriction for 2007, this is 
referred to as the Eligible Cost/Expenditure. The figures for each 
investor group are summarised in the table below.      
 
Investor 
Total Amounts 
Eligible 
Eligible 
Group 
Paid* 
Expenditure** 
Expenditure 
(before 75% restriction) 
(after 75% restriction) 
Exhort €101,254,000 €95,305,084 €86,667,413 
Suite 
€87,909,314 €83,557,979 €75,984,952 
Owners 
Ilesca €35,245,000 €33,497,619 €30,464,299 
Total €224,408,314 
€212,360,683 €193,116,664 
 
*   Total Amounts Paid = development agreement price plus lease 
premium 
** This is the figure before the 75% restriction for 2007 
 
We attach in Appendix 4 further details of the formula set out in Irish 
tax law for determining Eligible Expenditure followed by detailed 
calculations for each group outlining how the above figures are arrived 
at.  
 
The formula for calculating eligible expenditure for each of the 
Investors is the same regardless of whether they acquired their interest 
in the hotel before or after the hotel was fully constructed. The 
calculation of eligible costs is also the same for individuals and 
corporate entities. 
 
3. Did the price of acquiring ownership by the Investors potentially take 
into account the fact that the Investors will be eligible for the capital 
allowance (i.e. did this price contain a premium through which part 
of the benefit resulting from the capital allowance was transferred to 
Carrylane) or did it simply cover the construction costs? 

 
7

 
Carrylane priced the sale of the various elements of the hotel with a 
view to making a reasonable commercial return on the costs it incurred 
in developing the hotel. The only situation in which the benefit of the 
capital allowance is clearly and expressly shared arises from the buy-
back arrangements entered into with the Exhort Co-ownership. Whilst 
the Suite Owners would have been aware of the availability of capital 
allowances, they acquired their hotel suites primarily for capital 
appreciation over a long term horizon. The Suite Owners are not and 
never have been a party to any buy back arrangements, they have they 
received any warranties in respect of the availability of the allowances 
and accordingly were allowances to be restricted or disallowed in 
relation to the hotel there is no price adjustment for the Suite Owners.  
 
Carrylane’s total cost of developing the entire hotel including its 
financing costs amounted to €189.8m including the cost of the unsold 
suites transferred to Ilesca of €35.245m. Carrylane’s revenue to date 
from the sale of various aspects of the completed hotel amounts to 
€204.2, including €35.245m from the sale of unsold hotel suites to 
Ilesca Limited (see further comments on the unsold hotel suites held by 
Ilesca Limited at questions 15 below). This equates to a profit of circa 
€14.4m or circa 7% assuming third party sales of €35.245m are 
actually achieved.  The price payable under the development 
agreements was not dependent on the actual capital allowances 
granted. 
 
A typical development profit range on such a development where 
capital allowances are not present would be in the region of 10-20%. 
As can be seen from the above figures, the percentage return on the 
current transaction is well within this range and is supportive of the 
fact that Carrylane did not command a premium from the Investors but 
rather simply earned a normal/reasonable profit margin on its 
development activities. Accordingly, while the availability of capital 
allowances may have facilitated the marketing and sale of the hotel 
suites, the suggestion that the development price paid by the Investors 
contained a premium due to the availability of capital allowances is not 
supported by the development profit margin earned.  
Therefore, in our view no such premium is present in the current case. 
 
 
4. As not all the Investors were present at the time the investment 
started back in 2005, who covered the remaining part of the 
construction costs? Was it Carrylane? 

 
8

 
As explained in further detail above, the vast majority of Investors 
signed up for the project during 2005 and 2006 and paid a small 
amount of a deposit under their lease agreements and development 
agreements as appropriate.  The balance of the cost of developing the 
hotel was funded by bank debt drawn down by Carrylane (supported 
by the signed Investor development agreements and leases). As and 
when Carrylane received the balance of monies due to it under the 
various lease agreements and development contracts (when the hotel 
was fully built and ready for opening), it used those funds to repay its 
bank debt. 
 
 
5. In their draft reply of 25 August 2009 the Irish authorities indicated 
that Carrylane agreed to construct the hotel on behalf of the 
Investors on trading account as a property developer and not for its 
own use and retention on capital account as a hotel operator. In case 
the Investors ordered the construction of the hotel and paid for the 
construction (thus becoming the owners), why was there a need for 
the long-term (999 years) investor leases between Carrylane and the 
Investors (in which Carrylane seems to act as the owner of the 
Hotel)? 

 
Ownership of the land on which the hotel was built and the actual hotel 
building are two separate matters of expenditure which together make 
up the investors overall interest in their respective elements of the fully 
developed hotel. In order for the investors to acquire an ownership 
interest in the land they had to take a sub lease (the investor leases) of 
the land from Carrylane who itself had taken original ownership of the 
entire land/site under its 10,000 year head lease from Powerscourt 
Estates. 
 
This is how ownership of land is structured in Ireland where there are a 
number of investors taking ownership of the land.   
  
6. In what way are the investor lease agreements related to the 
expenditure incurred by the investors when contributing towards the 
construction/acquiring ownership in the hotel? What is the reason 
for the extremely low figures indicated in these agreements (10 € 
mentioned in Exhibit B and C of the reply of 1 April 2009). Are there 
separate agreements in place between Carrylane and the Investors 
specifying all the expenditure the individual Investors made 
(indicated as eligible expenditure by Ireland)? 

 
9

 
The investor leases are the agreements by which the Investors acquired 
their interest in the land on which the hotel was eventually built. The 
price paid for land does not qualify for hotel capital allowances. The 
actual development of the hotel building is paid for under the terms of 
the development agreements with Carrylane and the owners/investors. 
The majority of this figure qualifies as eligible expenditure (See 
summary table in response to question two above).     
 
Exhort Co-ownership: 
The Exhort Co-ownership, entered into a development agreement with 
Carrylane for the development of its element of the hotel with the 
development price being €101.254m. As the Co-ownership was not 
acquiring outright ownership of the hotel they did not pay an upfront 
capital sum/premium under its investor lease from Carrylane but rather 
agreed to pay an annual rent of €380,000 per annum.  
 
The €10 figure in Exhibit B arises from the way in which the leasehold 
interest in the land was sold by Carrylane to the Co-ownership under 
Irish law.  Carrylane sold the interest to the Co-ownership by way of a 
contract for €10 attaching the lease agreement under which the rent of 
€380K per annum becomes due.  
 
In summary therefore the Co-ownership acquired its interest in the land 
from Carrylane for an annual rent of €380K per annum (plus the €10 
upfront amount) and paid €101.254m to Carrylane who developed the 
hotel property on behalf of the Co-ownership on the land. It is the price 
payable under the development agreement that represents the Eligible 
Costs for hotel capital allowance purposes. 
 
Suite Owners: 
In the case of the Suite Owners who took outright ownership of their 
hotel suites, they paid an upfront capital sum/premium plus a nominal 
annual rent thereafter of €10 p.a. to Carrylane to acquire their 
ownership interest in the land (Exhibit C). The vast majority of the 
overall price paid for their element of the hotel was paid under the 
development agreements entered into with Carrylane. 
 
By way of example: for one individual Suite Owner, the lease 
agreement over the land in question provided for an upfront premium 
of €18,285  plus an annual rent of €10 per annum for each year 
thereafter.  The €18,285 premium is that individual Suite Owner’s 
share of the overall premium of €2.272m. The same Suite Owner also 
 
10

entered into a development agreement with Carrylane whereby it 
agreed to pay €703,130 to Carrylane to develop the investor’s hotel 
suite on the land.  A similar approach applied for all of the Suite 
Owners.  
 
As set out in further detail in Appendix 4 a formula based on Irish tax 
law is the applied to the total price payable by the Suite Owner (i.e. 
€721,415 in the above example) to arrive at the Eligible Cost for hotel 
capital allowance purposes. Not all of the total price paid will qualify 
for hotel capital allowances as can be seen from the examples in 
Appendix 4.  
 
 
7. Please specify how the rents to be paid by the Investors on the basis 
of the long term investor lease agreements are established. How high 
are these rents? Are they market conform? Why is there a need for 
the Investor to pay this rent in light of the fact that they already 
contributed significant sums to construct/acquire ownership in the 
hotel? 

 
The rents payable under the investor leases are determined by the rents 
which Carrylane must pay to the original owner of the land, 
Powerscourt Estates, under the Head Lease entered into between 
Carrylane and Powerscourt Estates.  The rents payable relate only to 
the Investors interest in the underlying land on which the hotel was 
built. Such rental payments do not relate to, and are separate from, the 
development price payable to Carrylane for the 
construction/development of the physical hotel property on behalf of 
the investors.  
 
Each time Carrylane sold on an interest in this land/site to investors 
(via the investor leases) it charged either an annual rent or an upfront 
capital sum/premium to the Investors equivalent to its own obligations 
under the Head Lease with Powerscourt Estates. These rents 
effectively flow through Carrylane and up to Powerscourt Estates 
under the Head Lease. 
  
Exhort Co-ownership: 
As set out in more detail in response to question 6, the Exhort Co-
ownership did not pay an upfront capital sum/premium for its interest 
in the land. Instead under the terms of its Investor lease it agreed to pay 
an annual rent of €380K per annum (Exhibit B Clause 2 of Investor 
Lease). The Exhort Co-ownership was required to pay these amounts 
 
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in order to acquire an interest in the land on which the hotel property 
was to be built. The sum of €101.254m was paid for the physical 
construction/development of the hotel property and not the underlying 
land. 
 
Suite Owners: 
As set out in more detail in response to question 6, the Suite Owners 
acquired their ownership interest in the land by paying an upfront 
capital sum/premium under their investor leases plus a nominal annual 
rent thereafter of €10 per annum. The total upfront premiums payable 
by all of the Suite Owners for their interest in the land amounted to 
€2.272m. The appropriate portion of this lease premium was inserted 
in each individual investor lease at Clause 2 of Exhibit C. The Suite 
Owners were required to pay these amounts in order to acquire an 
interest in the land on which the hotel property was to be built. The 
sums paid under their development agreements with Carrylane were 
for the physical construction / development of the hotel property and 
not the underlying land. 
 
 
8. Are the terms of the occupational leases (by which the Invertors lease 

the hotel back to Carrylane as hotel operator) market conform? 
Ireland indicated that the rents the Suite Investors receive 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. Please explain how these rents 
are established for the first seven years and what ensures that they 
are based on market yields. Please also explain why there is a 
different arrangement for the years following the seventh year and 
whether this could also be considered market practice.  
 
Please provide a detailed explanation allowing to establish that the 
rents are market conform. In fact, one of the channels through 
which the benefit resulting from the capital allowance can be passed 
on to Carrylane is a reduced rent offered to Carrylane.  
 
In our view the terms of the occupational leases entered into by the 
Suite Owners are considered to be “market conform”. The Suite 
Owners have granted occupational leases to Carrylane (as hotel 
operator) for a term of at least 45 years with an option to terminate 
after 25 years and every 10 years thereafter.  Occupational leases of 
such length and with the associated break clauses would not be 
uncommon in the Irish market. 
 
12

 
The intention was to grant a lease with rent linked to net revenue from 
the hotel.  However it is generally accepted that all new hotels take 
some time to stabilise in terms of their trading performance, and that 
luxury resort hotels can take longer again. Therefore rather than have 
rent linked to net revenue in the early years, the 3% yield was to ensure 
a minimum return for investors for the first 7 years, so as to reduce the 
risk of a reduced return due to pre-stabilisation losses which would 
have made the hotel suites less attractive to the potential investors. 
 
Accordingly, for the first 7 years the rent is payable at a yield of just 
under 3% on the total amounts paid by the Suite Owners (i.e. lease 
premium under investor lease plus development price under 
development agreement with Carrylane). For example using the sample 
hotel suite referred to in response to question 6 above the annual rent in 
years 1 to 7 is €21,475 based on a total price paid of €721,415 (18,285 
+ €703,130).  
 
Thereafter the investors rent is completely dependent on the net 
revenue derived from the hotel and accordingly carries the potential for 
the rent in year 8 and onwards to exceed the rent payable during the 
first 7 years as it will be based on the net revenue generated from the 
hotel suites.  As the rent payable for 38 years out of the 45 year 
occupational lease term is completely dependent on room based 
revenue which in turn is driven by market forces, then in our view, the 
rents payable are clearly market driven and hence are “market 
conform”.  
 
9. How are the rents to be paid by Carrylane to the Exhort Co-

ownership established?  Can these rents also be considered market 
conform? 

 
Due to the existence of the buy-back arrangements in place between 
Carrylane and the Exhort Co-ownership, the rent payments due from 
Carrylane as occupational tenant to the Exhort Co-ownership under the 
occupational lease differ from those payable by Carrylane to the Suite 
Owners. 
 
Under the terms of the buy-back arrangements Treasury Holdings has 
agreed to buy back the Exhort Co-ownership’s hotel property for circa 
€80m plus other related costs. The €80m figure relates to the Exhort 
Co-ownership’s bank borrowing used to fund the development price 
payable to Carrylane for constructing/developing the hotel property.  
 
13

 
As Carrylane will pay a buy back price sufficient to discharge the 
capital borrowings of the Exhort Co-ownership, the rent charged to 
Carrylane is such that it is sufficient to meet (i) the Exhort Co-
ownership’s interest obligations under its €80m loan facility i.e. 
€1.941m (Exhibit F Schedule 7), and (ii) the obligations of the Exhort 
Co-ownership under its Investor Lease from Carrylane i.e. €380K per 
annum (Exhibit F Schedule 7 and Exhibit B Clause 2 of Investor 
Lease). 
 
Such rental arrangements are a typical feature of transactions which are 
structured with buy-back arrangements and would be considered 
“market conform” in Ireland. The rental yield on the Exhort element of 
the transaction equates to 2.3% (i.e. €1.941m + €380K/€101.254m). 
The difference in rental yields between the Suite Owners and Exhort is 
due to the different characteristics associated with the two groups of 
investors. In particular the fact that the Suite Owners have acquired 
outright ownership, have no buy-back arrangements and have received 
no warranty in respect of the level of qualifying expenditure. 
 
As set out at the start of this note, we accept that Carrylane is a 
beneficiary of the aid but only to the extent of the benefit conferred on 
Carrylane under the buy-back arrangements with the Exhort Co-
ownership which we have previously quantified as being circa €5.2m. 
 
 
10. 
When calculating the advantage for Carrylane resulting from the 
buy-back agreement with the Exhort Co-ownership, the Irish 
authorities specified the value of the capital allowance foregone to be 
€ 86.6m spent by Corporation tax rate of 12.5 % i.e. €10.8m. What 
does the figure of € 86.6m refer to ? (it does not correspond to the 
€101m paid by the Exhort Co-ownership to purchase their property 
from Carrylane nor to the € 80m that Treasury Holding will have to 
pay to buy it back) 

 
The figure of €101.254m relates to the development price payable by 
the Exhort Co-ownership to Carrylane for the development of their 
aspect of the hotel.  This figure is then reduced by reference to 
amounts that do not qualify for hotel capital allowances under Irish 
Law and to take account of the fact that only 75% of the underlying 
expenditure in 2007 qualifies for capital allowance purposes. 
 
 
14

The portion of the €101.254m development price qualifying for hotel 
capital allowances before applying the 2007 restriction is €95.305m 
(see table in response to question two above).  When the 75% 
restriction is applied to expenditure incurred in 2007, one arrives at a 
time apportioned overall qualifying percentage of 90.9% which when 
applied to €95.305m gives the final qualifying figure of €86.6m. 
Appendix 4 contains further notes and calculations setting out exactly 
how the above figures are arrived at. 
 
The €80m simply relates to the fact that the Exhort Co-0wnership 
funded the development price payable to Carrylane by way of bank 
borrowings of €80m and own funds introduced of €21m.   
 
 
11. 

Why is such buy-back agreement not in place with the other 
Investors? 
 
The buy-back agreement is not in place with other investors (i.e. the 
Suite Owners) on the basis that they have acquired an outright 
ownership interest in the land on which their hotel suites were built via 
their 999 year lease agreements.  These investors have opted to retain 
the hotel suites as property investments for the long term rather than 
just for the 7 year duration of the hotel capital allowances.  
 
The Suite Owners are the sole beneficiaries of the respective 
allowances and they bear the commercial risks associated with the 
hotel as the rents which they will receive under the occupational leases 
will for the majority of the 45 year term be linked directly to the 
Hotel’s performance. Furthermore unlike the Exhort Co-ownership, 
Carrylane has not in any way warranted or underwritten the amount of 
capital allowances which will be available in respect of the Hotel 
suites. However Carrylane has done so for the Exhort Co-ownership 
and is on risk for that warranty. 
 
 
12. 
Some of the lease contracts (Exhibit B and E of the reply of 1 
April 2009) refer to 'Ritz Hotel Limited (now Carrylane Limited)'. 
What is the reason for this? Is/Has there been a connection between 
the two companies? Is Carrylane linked to the Ritz-Carlton Hotel 
Company in any way? 

 
There is no legal connection between Ritz Hotel Limited (now 
Carrylane Limited) and the Ritz-Carlton Hotel Company.  The only 
 
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connection between the two companies is the fact that they have 
entered into an arm’s length operating agreement (Exhibit E) under 
which Carrylane has hired the Ritz-Carlton Hotel Group to manage the 
Powerscourt Hotel under the Ritz-Carlton brand on behalf of 
Carrylane. 
 
Carrylane Limited was originally established as Ritz Hotel Limited on 
the 7 April 1995 some 14 years ago.  The use of the name Ritz Hotel 
was chosen in anticipation of either the Ritz Carlton or the Ritz Hotel 
operating the hotel and so the Treasury Holdings Group wanted to 
protect the use/ownership of the name from an early date.  At that time 
no discussions had been entered into with the Ritz-Carlton Hotel 
Group. 
Matters progressed over the next number of years and the Ritz-Carlton 
Hotel Group was selected as the hotel manager by the Treasury 
Holdings Group. At that time the Ritz-Carlton Hotel Group insisted on 
the name of the company being changed to ensure it was clear that 
there was no connection between the Ritz-Carlton Hotel Group and 
Ritz Hotel Limited. With effect from 21 July 2005 Ritz Hotel Limited 
was renamed Carrylane Limited.   
 
 
13. 
Several of the agreements submitted on 1 April 2009 mention the 
Head Lease, i.e. a lease dated 16 July 2007 between Powerscourt 
Estates and Carrylane limited regarding the Hotel. Exhibit B 
provides that the yearly rent to be paid by the Exhort Co-ownership 
to Carrylane is the annual rent reserved from time to time by the 
Head Lease. Exhibit F also defines the rent to be paid by Carrylane 
to Exhort in the frame of the occupational lease as the rent payable 
under and reserved by the head lease. Please explain the purpose of 
the Head Lease and the way it is related to the other lease agreements 
between Carrylane and the Investors. 

 
As referred to under point (a) above, the Head Lease was the legal 
agreement by virtue of which Carrylane acquired the land on which the 
hotel was to be built.  Carrylane then granted subleases (i.e. the 
investor leases) of the land out of its leasehold interest to the Exhort 
Co-ownership and each of the Suite Owners.   
 
In the case of the Suite Owners they paid an initial premium for their 
investor lease from Carrylane who in turn passed it on to the original 
owners of the site, Powerscourt Estates under the terms of the Head 
 
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Lease, thereafter only a nominal €10 rent is payable per annum by the 
Suite Owners. 
 
In the case of the Exhort Co-ownership, rather than paying a capital 
sum upfront, an annual rent of  €380k is payable by Exhort Co-
ownership to Carrylane under their Investor Lease which is then passed 
on to Powerscourt Estates by Carrylane under the terms of the Head 
Lease. 
 
 
14. 
Ireland specified that Carrylane has entered into a management 
agreement with Ritz-Carlton Hotel Company employing Ritz-Carlton 
as hotel manager. It was indicated that Ritz-Carlton is paid an arm’s 
length fee for its management operations. Could you provide more 
details about this fee? How is it established and why can it be 
considered arms length? Is it a fixed fee or performance related 
remuneration?  
 
The Ritz-Carlton Hotel Group was hired by Carrylane to provide hotel 
management and operational services to Carrylane and has no 
ownership interest in the hotel. The fee arrangements are arm’s length 
in nature as they were negotiated between Carrylane and the Ritz-
Carlton Hotel Group as two independent parties. 
  
A copy of the Operating Agreement was submitted as Exhibit E in our 
submission of 1 April 2009. 1 The fee arrangements are set out in 
clause 6.2 of Exhibit E and involve a number of component parts 
which as set out below, are based on fixed percentage of gross 
revenues: 
 
-  a Base Royalty Fee of 1.6% of Gross Revenue (as defined in the 
agreement) 
-  a Management Fee of 0.4% of Gross Revenue (as defined in the 
agreement) 
-  a Marketing Fee of 1.0% of Gross Revenue (as defined in the 
agreement) 
-  an Incentive Royalty is also payable by reference to certain levels of 
profitability which have not as yet been met. 
 
 
2. AMOUNT AND INTENSITY OF THE AID 
                                                 
1 The Agreement contains business secrets/commercially sensitive information and should be covered 
by the obligation of Professional Secrecy. 
 
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15. 
Ireland also included into the eligible costs and the aid amount 
the Suites that were temporarily acquired by Ilesca Limited. This 
company is a 100% subsidiary of Treasury Holdings (similarly to 
Carrylane) and will not claim capital allowance for its investment. 
Ilesca Ltd hoped to identify a number of other third party investors 
who would acquire ownership of the unsold suites from it, however 
in the current economic environment it has not been possible to 
achieve this. Ireland claims that "Ilesca Ltd was included in the 
Notification documentation so as to provide the full picture to the 
Commission and to avoid the need to revisit the matter in the event 
that new third party Investors are sourced to acquire the unsold 
suites from Ilesca Ltd and claim the capital allowances in the 
future". However, Ireland also specified that the underlying legal 
basis deems Investors to have incurred eligible expenditure on the 
construction of a new hotel if they acquire the suites within 12 
months of the hotel first coming into use. As the hotel opened for 
business in October 2007, no further investor seems to be able to 
acquire the right to the capital allowance. Thus it seems that the part 
currently held by Ilesca cannot any more benefit from the capital 
allowance. Please confirm this 

 
Under Irish tax law once the hotel property is sold by the developer 
(Carrylane) within 12 months of first use (i.e. by 30 September 2008), 
then capital allowances are available to Ilesca or any subsequent 
purchaser of the hotel suites from Ilesca. 
 
In the context of the current notification we have confirmed that it is 
not Ilesca’s intention to claim capital allowances itself, however, the 
hotel suites in question were transferred to Ilesca with a view to 
protecting the availability of allowances in the event that Ilesca was 
able to sell the hotel suites to third party purchasers in the market. 
 
In such instances the third party purchasers would under Irish Law, be 
entitled to claim the capital allowances in respect of the hotel suites 
acquired from Ilesca.  For this reason the Ilesca hotel suites were 
included in the notification. While the Ilesca hotel suites can still 
qualify for capital allowances if sold to a third party purchaser, the 
amount of qualifying expenditure for capital allowances purposes is 
forever restricted by reference to the price which Ilesca paid for the 
hotel suites i.e. €33,497,619 (before restriction for 2007 spend). 
Appendix 4 contains further notes and calculations setting out exactly 
how the above figure is arrived at. 
 
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16. 
As the form of aid is accelerated depreciation, the aid element 
needs to be calculated. Ireland used the highest possible aid intensity 
of 12.5 % determined under the approved scheme N 832/2000 
(extended by N 232/2006) to calculate the aid element. However, this 
intensity only applies to beneficiaries subject to personal income tax2. 
Calculated this way, the aid element is higher than the maximum 
that can be allowed in the region concerned under the Regional aid 
guidelines 1999-2006 and the Multisectoral Framework 2002. Since 
some of the beneficiaries, however, are subject to corporate income 
tax, the actual aid element might be lower.
  
Ireland is invited to resubmit the table in p. 1 of the draft reply of 25 
August 2009 with a breakdown of expenditure incurred by the three 
groups of beneficiaries showing separately expenditure made by 
beneficiaries subject to personal income tax and those subject to 
corporate income tax in order to calculate the aid element.  

 
We attach as Appendix 2 a revised table 1 from the draft reply of 25 
August 2009 breaking out the expenditure incurred by the three 
beneficiary groups namely the Exhort Co-Ownership, the Suite Owners 
and Ilesca showing the portion of expenditure incurred by individuals 
and corporates within each group. 
 
We have also included revised working based on the tax rates and 
reference rates applicable in 2005 for each of the two groups which 
demonstrates in each case that the eligible expenditure in question is 
below the maximum permitted aid for large investment projects.  
 
 
 
3. MARKET ANALYSIS 

 
17. 
In order to substantiate Ireland's position that the relevant 
geographic market in this case should be the EEA, please explain 
what the main attraction of the area is, capable of drawing visitors 
from all over the EEA (in the Atlantica case referred to by Ireland, 
for instance, there was a theme park) 

 
Based on our analysis of the origin of hotel visitors at the hotel for 
2008 and for 2009 (up to mid September) we propose that for the 
                                                 
2  
P. 29 of the decision in the case N 832/2000 indicates that the aid intensity depends on certain 
parameters such as the corporate and personal tax rates. 
 
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purposes of this notification the relevant geographical market should 
be Ireland. Essentially this contention rests on the fact that almost 60% 
of the hotel guests at the hotel in 2009 originated in Ireland, while the 
corresponding proportion from the rest of the EEA was circa 19% (see 
appendix 3). It should be noted however that the Irish authorities are of 
the view, that for the purposes of marketing and sales promotion of the 
hotel generally, the EEA and indeed the global market are the relevant 
geographical market. However, for reasons chiefly arising from the 
heterogeneity of hotel classification standards and criteria across EEA 
Member States and the lack, therefore, of objective standardised data 
on hotel accommodation, it is considered that for practical reasons for 
the purposes of this notification that the relevant geographical market 
should be Ireland.  
 
18. 
Please provide information on the country of origin of the guests 
since the opening of the hotel in 2007 and their percentage share in 
the total.  

 
Appendix 3 contains the percentage allocation of guests from Ireland, 
the EEA, the Americas/Canada and the rest of the world for the 
calendar year 2008 and the calendar year 2009 from 1 January 2009 to 
10 September 2009. 
 
 
19. 
Please provide more detail about Treasury Holdings being the 
passive landlord of two hotels in Dublin. What does passive landlord 
mean? Which are the hotels in question? 

 
As set out in our draft response of 25 August 2009, the Treasury 
Holdings Group is not involved in the operation of any hotels other 
than Powerscourt Hotel.  For completeness we highlighted the fact that 
as landlord Treasury Holdings or members of its group own two 
properties as landlord which is rented out to tenants who carry on hotel 
operations in those properties.   
 
The term passive landlord refers to the fact that Treasury Holdings 
simply owns the property, receives a rent from the occupant (i.e. the 
hotel operators) and is not connected or involved in any way with the 
hotel operations carried out on the premises. 
 
The hotels in question are the Westin Hotel, Westmoreland Street, 
Dublin 2 and the Schoolhouse Hotel, No 2-8 Northumberland Road, 
Ballsbridge, Dublin 4. 
 
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20. 
Regarding the question of the relevant product market, it seems 
that the data provided by Ireland include all types of accommodation. 
However, the Commission services consider at this stage that not all 
hotels in the EEA/Ireland are a real substitute. According to the 
hotel website, the Ritz-Carlton Powerscourt is a 'luxury hotel 
showcasing Palladian-style architecture and offering guests a host of 
amenities. Two championship-calibre golf courses on the grounds, a 
30,000-square-foot luxury spa and a Gordon Ramsay signature 
restaurant are among this Ireland luxury hotel’s distinctive 
attractions.' Thus Ritz-Carlton Powerscourt is arguably best suited 
for guests looking for remoteness and proximity to nature and 
specific amenities rather than city travellers. 
 
In light of this, please provide arguments as to which types of hotel 
could be considered close substitutes for Ritz-Carlton Powerscourt 
and submit new data enabling the calculation of market share and 
capacity increase pursuant to p. 24 (a) and (b) of the Multisectoral 
Framework 2002 on this possibly narrower market.  
 
The point that not all hotels and similar establishments in the 
EEA/Ireland are a real substitute is accepted. On the basis of an 
analysis of national hotel classification criteria it is our view that 4 and 
5 star hotels combined form the relevant product market.  The 
contention that the relevant product market encompasses 4 and 5 star 
hotels is based on the premise that there exists a high degree of 
substitutability within this segment of the tourism market. Switching 
costs are low or negligible   should customers choose to react to price 
increases on an individual hotel level or even national or regional hotel 
level by the use of an alternative destinations or alternative class of 
hotel accommodation. This ease of switching has been facilitated in 
recent years by an absolute and relative decrease in air travel costs 
through the increased market share of low cost carriers.  The increased 
penetration of internet use in the hotel sector either as a means of 
advertising or as a means of booking accommodation has increased 
customer power. Ease of access to market information on relative 
accommodation prices and standards ensures that the hotel market is 
among the most efficient consumer markets. Potential hotel customers 
have real time access to price developments and can make informed 
decisions based on this information.  
With regard to your services point that Hotel is best suited for guests 
looking for remoteness and   proximity to nature and specific amenities 
 
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rather than city travellers. Our services do not hold the same view, 
take, for example, the following quote from the Ritz Carlton website  
 
"Whisk yourself away to a Palladian estate tucked back in the 
woodlands of County Wicklow, on Ireland’s east coast. Take an 
enchanting stroll amidst the gentle green hills and sparkling lakes of 
Powerscourt Gardens, then head into Dublin for some cosmopolitan 
flair. The sumptuous surroundings of our Ireland hotel combine the 
luxury and tranquility of country living with city chic." 
 
This is what the Hotel offers - the combination of remoteness and city 
chic.  A customer can choose either or both by remaining in the surrounds 
of the Hotel or by taking the bus/car into the city centre just 35 minutes 
away. This closeness to the city also opens up the possibility of 
conference and events business from the city.  In one day visitors can 
experience both worlds without any need to move hotel.  The attached 
link to its press release on the development of the hotel may also be 
useful.  
 
http://corporate.ritzcarlton.com/en/Press/Properties/Powerscourt/Releases
/Opening 
 
 
CONCLUSION 
 
The Irish Authorities would welcome the opportunity to clarify any 
remaining matters in relation to this project before the Commission 
comes to a decision.  While we understand that the Commission is 
processing a large volume of projects, we would welcome an indicative 
response at the earliest opportunity.   
 
 
Yours sincerely 
 
 
 
 
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