The cornerstone of Ireland’s securitisation framework is Section 110 of the Taxes Consolidation Act 1997 (referred to as “Section 110”). It establishes a special tax regime for “qualifying companies”, often known as section 110 companies, which are formed to securitise assets.
Additionally, Section 110 allows for a wide range of tax-neutral financial and leasing transactions to be carried out by qualified Irish-resident special purpose vehicles (SPVs). The regime’s scope is broad, covering businesses engaged in holding and/or managing various financial assets (known as “qualifying assets”).
In an environment where there is a rising global focus on tax havens and transparency, a Section 110 company is frequently used as an onshore investment platform.
Qualifying company criteria
A qualifying company must meet certain requirements, such as the following:
- the company must be resident in Ireland
- the company must acquire, hold or manage the qualifying assets in Ireland
- does not engage in any other activities than those that are related to that business
- carries out a first transaction of at least €10 million
- informs the Irish tax authorities that the company meets all of the requirements mentioned above
Initially, a Section 110 securitisation company was only permitted to hold and manage financial assets. The regime was expanded by the Finance Act 2011 to include plant and machinery, leased assets and commodities.
The following are included in the current definition of qualifying assets:
- shares, bonds and securities
- futures, options, swaps and derivatives
- invoices and receivables of all kinds
- debt obligations including loans and deposits
- lease portfolios and loan portfolios
- insurance and reinsurance contracts
- hire purchase contracts
- bills of exchange, promissory notes, commercial paper and any other types of negotiable or transferable instruments
- certain types of carbon offsets
- acceptance credits, as well as all other title documents pertaining to the movement of goods
- commodities such as carbon credits
- plant and machinery
Most structured finance vehicles can qualify as Section 110 companies due to the wide variety of assets, making the transaction tax neutral. Ireland is therefore the perfect location for an on-shore, OECD/EU issuer with no tax leakage.
Advantages of a Section 110 Company
A Section 110 company does not have a blanket exemption from Irish taxation. However, the issuance of profit-participating notes can help it become tax neutral if it is structured correctly as the interest payments on the notes which vary with profits are generally tax deductible. A Section 110 Company has several other advantages including a tax-deductible funding cost and any related expenses. It can also benefit from Ireland’s wide network of tax treaties and be exempt from tax withholding on interest and dividend payments.
A qualifying Section 110 Company may be exempt from stamp duty on the issuance and transfer of profit-participating notes. Moreover, a Section 110 Company is generally treated as being engaged in VAT-exempt activities for VAT purposes, and as such, it has a limited ability to recover VAT on any services it receives.
The Irish government has implemented beneficial tax laws for finance vehicles in Ireland and the tax points mentioned above are especially significant. However, there have been substantial changes to the international tax system in recent years and it is receiving more attention than ever. The international tax affairs of entities are closely examined by tax authorities as well as a knowledgeable and interested public. Therefore, it is crucial for companies to implement responsible tax strategies and ensure full compliance. But for international businesses that operate in several different jurisdictions, this can be particularly difficult.
How can Bolder help you?
At Bolder Group, we keep you informed of any regulatory changes, including any new regulations that may affect existing clients to ensure compliance with European Union regulations. Bolder has extensive experience managing companies and SPVs for corporate and institutional clients, alternative investment managers and capital market participants.
We offer multi-jurisdictional tax and operational structuring as part of our services, and we always keep our clients up to date on all relevant regulatory, legislative and compliance issues. This way, we can ensure that all clients involved in the structure are in good standing and in compliance with local and international requirements.
To find out more about our services, get in touch with us or visit a Bolder office near you.