Section 110 of the Taxes Consolidation Act 1997 affords favourable tax treatment to “qualifying companies” engaged in certain transactions that are regarded as securitisations. Profits of such companies are subject to tax at 25% but are computed on the same basis as a trading company. This means that the costs of funding are generally tax deductible resulting in minimal profit on which the company will pay corporation tax.

Expansion of “Qualifying Assets”

Previously, Section 110 companies could only invest in financial assets. Finance Act 2011 has extended the definition of qualifying assets to include tangible commodities that are dealt with on a recognised commodity exchange.  Carbon credit offsets and the leasing of plant or machinery are also now included in the Section 110 regime.

Anti-Avoidance Measures

In addition to broadening the scope of the definition of qualifying assets, Finance Act 2011 introduced certain anti-avoidance measures. 

Profit dependant interest payments or distributions made by a Section 110 company will not be tax deductible for corporation tax purposes when paid to non-Irish residents, other than pension funds, governmental entities and other entities that are generally entitled to a tax exemption under the law of an EU/tax treaty country.

The provisions apply to payments made on or after 21 January 2011. Under grandfathering provisions brought in under the Act, however, where such payments are made in respect of securities issued under a binding written agreement made before that date then a tax deduction for corporation tax purposes will continue to be granted.  

Conclusion

The expansion of the range of assets which may be held by Section 110 companies increases the scope of securitisation transactions which may be carried out in Ireland. It is expected that the anti-avoidance provisions will have limited impact on the sector and on Ireland’s popularity as a prime location for securitisation transactions.

Contributed by Martin Phelan.