This is an HTML version of an attachment to the Freedom of Information request 'Ireland National Asset Management Agency Deferred Mortgage Initiative'.



Ref. Ares(2013)697534 - 15/04/2013
Ref. Ares(2014)69823 - 14/01/2014
Appendix A 
 
Final Responses to questions 1 to 11 of Commission Letter 23 July 2009 
Reference NN30/2008 (Ex N 660/2008] 
 

AID AMOUNT AND AID INTENSITY 
 
(1) The Irish authorities are invited to specify the following parameters:  
 
(a) For each group of beneficiary separately the tax rate applicable in 2005 
 
(1)(a)  We set out in the table below the tax rate applicable in 2005 for each group of 
Investors that benefited from the capital allowances: 
 
Tax type 
2002 
2005 
Rate1 
Rate 
Corporate tax rate (for companies) 
16% 
12.5% 
Top personal income tax rate (for individual co-owners/suite 
42% 42% 
owners) 
 
(b)/(c) For each group of beneficiary separately the expenditure incurred pre 2007 (eligible 
at a rate of 100 %) and the expenditure incurred in 2007 (eligible at a rate of 75 %) 
 
 
This information has been superseded by Appendix 2 of the Submission from the Irish 
Authorities of 9 October 2009 – please refer to same. 
 
 
2. 

APPLICATION OF THE AID SCHEME AND BENEFICIARIES OF THE AID 
 
•  Additional background and explanations 
 
We set out to follow some additional information with a view to addressing the comments 
made by the Commission in the first two paragraphs of Section 2. 
 
(i) 
Options open to Carrylane for structuring the development 
 
In starting out this venture Carrylane Limited (“Carrylane”) had two options available to it in 
terms of structuring the development of the hotel.   
 
Option 1. 
Firstly, it could have built the hotel for its own use and retention for the foreseeable future 
such that the hotel would represent a capital asset of Carrylane for use in its hotel operations.  
In this instance, Carrylane, provided it complied with the various conditions associated with 
the Irish hotel capital allowances regime, would have been in a position to claim capital 
allowances in respect of its qualifying expenditure on the construction of the hotel. This 
option was not pursued. 
                                                            
1 The 2002 rates are taken directly from Paragraph 29 of Case No N 832/2000 
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Option 2. 
Alternatively (and this was the approach adopted), Carrylane as property developer 
developed the hotel on behalf of a group of third party Investors who took full ownership of 
the hotel and, subject to complying with the necessary conditions, are entitled to claim capital 
allowances in respect of the qualifying expenditure incurred by them on the construction of 
the hotel.  In these circumstances, the only expenditure qualifying for capital allowances is 
that which is incurred by the owners of the property, i.e. those third party Investors. 
Carrylane is not entitled to claim capital allowances. 
 
Accordingly the statement under Question 6(c) - paragraph 3 in our letter of 1 April 2009, 
that “Carrylane has effectively sold its entitlement to tax allowances to the Exhort Co-
ownership”, is not correctly explained due to the shortened nature of the response at that 
time. In light of the above more detailed explanations, the Commission will see that 
Carrylane, by structuring the transaction such that it acted as property developer rather than 
hotel owner and operator was not entitled to claim hotel capital allowances under Irish tax 
law. 
 
Separately, Carrylane in its capacity as hotel operator has taken a leaseback of the hotel from 
the Investors at an open market rent. Furthermore it should be noted that none of the 
Investors are operators in the hotel/accommodation sector. 
 
(ii) Distinction between Exhort Co-owners and Suite Owners 
 
An important distinction exists between the Exhort Co-ownership Investors and the Suite 
Owner Investors which the Commission may wish to take into account when reviewing the 
role played by the various parties, including Carrylane. This distinction is summarised below. 
 
The Suite Owners are Investors who incurred expenditure on the construction of the hotel 
under their development agreements with Carrylane (in its capacity as a property developer) 
and who retain long term ownership of their hotel suites. They have leased back their hotel 
suites at an arms length rate to Carrylane (in its capacity as hotel operator). The Suite Owner 
Investors, as arms length landlords, are entitled under Irish law to obtain the capital 
allowances.   
 
The Exhort Co-owners are Investors who also incurred expenditure on the construction of the 
hotel under their development agreements with Carrylane (in its capacity as a property 
developer) and who have temporary ownership of the hotel for the duration of the transaction. 
It is fair to say that the capital allowances which the Exhort Co-owners obtain are to some 
extent and as a result of a contract between the Exhort Co-owners and Carrylane indirectly 
shared with Carrylane. We estimate Carrylane’s net benefit from this arrangement is circa 
€5.2m as set out in more detail in Appendix 1. 
 
The key distinction arises from the fact that although the Exhort Co-owners are claiming 
capital allowances, they have commercially agreed to share the value of these capital 
allowances with Carrylane and sell back the property to Carrylane/Treasury Holdings at the 
end of the transaction. The buy back arrangement is the mechanism through which the value 
of these capital allowances is shared. The cost to Carrylane of earning its share of this value 
includes the opportunity cost of the allowances foregone, the charge to stamp duty on the buy 
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back and other costs of acquisition, such that the maximum net benefit to Carrylane from its 
transaction with the Exhort Co-owners is circa €5.2m as set out in more detail in Appendix 1. 
 
Notwithstanding the calculation of this net benefit, we would draw the Commission’s 
attention to the comments in our reply of 1 April 2009 under the heading of “Le Levant” (ref: 
pages 4 to 5) whereby we stated that 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. We remain of this view. 
 
 
(2) In light of this, is the understanding of the Commission services correct that it was 
Carrylane, (i.e. the company that undertook the construction of the hotel and became the 
first owner of the hotel) which was eligible for the capital allowance in the first place, and 
sell this entitlement through the investor lease agreements it entered into with the different 
corporate entities and private individuals (i.e. the beneficiaries)? Please explain in detail. 
 
(2)  No, as set out in detail above, Carrylane was not eligible for capital allowances in the 
first place as the development was structured to ensure that the entitlement to capital 
allowances accrued to the owners who incurred the expenditure on the construction of 
the hotel, i.e. the various categories of Investors.     
 
As outlined above under “Additional background and explanations”, because 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, 
Carrylane was not entitled under Irish tax law to claim hotel capital allowances. The 
allowances accrue to the Investors. 
 
Had Carrylane built the hotel for its own use and retention for the foreseeable future 
such that the hotel would have represented a capital asset of Carrylane for use in its 
hotel operations it would have been in a position to claim hotel capital allowances. 
However this approach was not pursued. 
 
 
(3) If this is the case, can it be assumed that the lease agreements and the price to be paid 
by the beneficiaries to Carrylane took also the transfer of this entitlement to the capital 
allowance into account?  
 
(3)  Based on the response to question 2, question 3 is not applicable. However for clarity 
we have included a response to the second aspect of question 3 below 
 
(3) Should this be the case, can it be considered that the whole benefit resulting from the 
capital allowance accrued actually to one company, i.e. Carrylane? 
 
(3)  No, based on the information set out above and to follow, it cannot be considered that 
the whole benefit resulting from the capital allowances accrued in full to Carrylane.  
 
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Carrylane did not and will not claim capital allowances in respect of the hotel. The 
capital allowance claims are made solely by the Exhort Co-ownership and the Suite 
Owners who are the direct beneficiaries of the capital allowances. 
 
Hence the only possible advantage accruing to Carrylane which might be regarded as 
being related to the capital allowances is derived from the buy back arrangements which 
Carrylane has entered into with the Exhort Co-ownership. We have set out in Appendix 
1 to this letter an estimate of the maximum net benefit earned by Carrylane from the 
Exhort transaction which amounts to €5.2m. This is a maximum figure and in under 
certain circumstances set out in more detail in Appendix 1 could be further reduced. 
 
 
(4) In light of the fact that the eligible expenditure under the scheme N 832/2000 (extended 
by N 232/2006) is the expenditure on construction or refurbishment, could the Irish 
authorities explain how the expenditure described in Appendix 1 of the notification for the 
different beneficiaries, incurred after the hotel had been constructed, can qualify for the 
capital allowance? 
 
(4)  The expenditure on the construction of the hotel was contracted for, and incurred by, 
the majority of the Investors in late 2005 and during 2006. The contracts were then 
formally completed in or around hotel opening in late 2007. Accordingly the 
expenditure represents eligible expenditure on the construction of a new hotel under the 
approved scheme No 832/2000. 
 
The approved scheme No 832/2000 also incorporates the provisions of Irish Tax law 
(Ref: section 279 Taxes Consolidation Act 1997) which 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. This was the case for the 
remainder of the hotel suites. 
 
Therefore the expenditure incurred by all Investor groups is eligible expenditure under 
scheme No 832/2000 as it represents expenditure on the construction of a new hotel. 
 
Please refer to the submission from the Irish authorities of 9 October 2009 and the 
response to question 15 for further clarification on the above. 
 
 
(5) What does this expenditure by the beneficiaries refer to? Is it the price paid to 
Carrylane in the context of the investor leases? Is it the actualised amount of the rent to be 
paid by the beneficiaries for the lease? 
 
(5)  The expenditure referred to in the context of Question 5 is expenditure incurred by the 
Investors under their development agreement with Carrylane (as property developer) for 
the construction of the portion of the hotel owned by them.  The figure does not relate 
to the annual rental payments due under the Investor leases.  
 
Please refer to the Submission from the Irish authorities of 9 October 2009 and the response 
to question 6 for further clarification on this response. 
 
 
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(6) The Irish authorities specify that one of the owners, Ilesca Limited (which is, similarly 
to Carrylane, a subsidiary of the Treasury Holdings) is merely a temporary owner pending 
the sale of the suites to third party investors and will not be claiming capital allowances in 
respect of the property. Could the Irish authorities explain why the expenditure incurred by 
Ilesca Limited was included in the eligible costs of the project in case no capital allowance 
will be claimed? Or will the third party investors acquiring the ownership rights from 
Ilesca Limited be in a position to claim the allowance in the future? 
 
(6)  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.  Neither Ilesca Ltd nor Carrylane will be claiming 
capital allowances in respect of these suites. 
 
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.  
 
 
(7) What is the purpose of the buy-back agreement between Carrylane and the Exhort Co-
ownership? 
 
(7)  The purpose of the buyback agreement between Carrylane and the Exhort Co-
ownership is to facilitate the exit of the Exhort Co-ownership from the structure once 
the Investors have availed of the capital allowances. Such buyback arrangements are 
typical in transactions of this nature involving tax allowances and indeed were present 
in the Levant case. 
 
The buyback agreement also provides the mechanism by which the sharing of the value 
of the Exhort Co-ownership hotel capital allowances is agreed between Carrylane as 
property developer and the Exhort Co-ownership.  See further details in relation to same 
set out at Appendix 1. 
 
3. MARKET 

ANALYSIS 
 
(8) Given the characteristics of the hotel in question (e.g. location, closeness to special 
attractions, amenities available), please explain in detail what you consider to be the 
relevant product and geographic market in this case (i.e. what are the establishments and 
geographic areas with which the hotel can be considered to be in competition for the 
attraction of hotel guests). Please substantiate your answer as much as possible. 
 
The below response has been superseded by the Submission from the Irish authorities of 9 
October 2009 and the responses to Part 3 – Market Analysis contained therein. Further details 
on this item are also contained in the attached response to the question 3 of the queries from 
the Commission of 7 December 2009. 
 
 
(9) The Irish authorities explained that the various beneficiaries act as passive investors 
and they are not involved in the operation of this particular hotel, nor are they involved in 

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other hotel operation business. As in light of the above Carrylane Limited could also be 
considered a beneficiary (and even the main beneficiary) of the notified aid, please specify 
if Carrylane and its parent company, Treasury Holdings are active in the 
hotel/accommodation business apart from their involvement in Ritz Carlton, Powerscourt. 
Please also describe the set up and activities of Treasury Holdings in general. 
 
(9)  Both Carrylane and its parent company, Treasury Holdings have confirmed that, other 
than Carrylane’s involvement in the Ritz Carlton Powerscourt Hotel, the group is not an 
operator in any other hotel/accommodation business. Treasury Holdings is a passive 
landlord of two hotels in Dublin but has no operational involvement with either hotel 
nor did it ever claim capital allowances in respect of either hotel. 
 
Treasury Holdings was established in 1989 as a property investment and development 
vehicle and has a number of investments in wholly or partially owned subsidiaries 
involved in property investment, development and trading in the residential, retail and 
office sectors throughout Ireland, the UK and China.  The company is also involved in 
the provision of management and support services to fellow group companies.  
 
Further clarification on this can be found in the Submission from the Irish authorities of 
9 October 2009 and the response to question 19 of same and also in the attached 
response to question 3 of the Commission queries of 7 December 2009. 
 
 
(10) In order to check compliance with p. 24(a) of the MSF 2002, please provide data 
enabling the calculation of markets shares (at group level) in the relevant product and 
geographic market (identified in response to question (8) above) in the year prior to the 
start and following completion of the project. Data should originate from independent 
sources and should normally be provided both in volume and value terms. 
 
(11) In order to check compliance with p. 24(b) of the MSF 2002 please also provide data 
on capacity created by the project and the proportion of this capacity relative to the size of 
the relevant market in 2004, i.e. prior to the start of the project. 
 
 
 
  We would like to take the opportunity to point out to your services that even in the event 
that the relevant market is restricted to hotel accommodation in Ireland, the project would 
still satisfy the criteria of p.24 (a) and p.24 (b) of the MSF 2002 as it accounts for an 
additional 200 rooms to the national hotel room stock against a total national provision in 
2008 of 57,388 hotel rooms and a total provision in the State of 43,382 rooms in 2004.     
 
  On the basis that the project is within the limits set by MSF 2002 24(a) and 24(b) in an Irish 
context, and then by definition it is clearly within same from an EEA perspective. 
 
Further clarification can be found on this item in the attached response to question 3 of the 
queries from the Commission of 7 December 2009. 
 
  
 
 
 
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Appendix 1 – Calculation of potential benefit (if any) to Carrylane from its transaction 
with the Exhort Co-ownership 
 

 
€uro 
1. Development Agreement Price Paid by Exhort Co-ownership to Carrylane 
101,254,251 
 
 
2. Less approximate buy back price payable by Carrylane to Exhort Co-
(80,172.535)
ownership 
 
 
 
21,081,716 
 
 
3. Less: cost to Carrylane of capital allowances foregone  @12.5% Corporate 
(10,829,529)
Tax Rate 
 
 
 
10,252,187 
 
 
4. Less: stamp duty cost to Carrylane on buy back (6%) 
(4,810,352) 
 
 
 
5,441,835 
 
 
5. Less: additional costs of disposal/acquisition to be borne on buy back 
[(250,000)] 
(estimate)  
 
 
Net Benefit to Carrylane from the Exhort Co-ownership transaction 
5,191,835 
 
•  Additional points to note: 
 
The above figure of €5,191,835 represents the maximum benefit which Carrylane could be 
considered to receive from the Exhort transaction.  
 
However Carrylane has also indemnified the Investors in the event that the Investor 
Allowances are restricted and in the event of any such indemnity claims the above benefit 
would be further reduced. 
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