Minister for Finance releases proposed amendment to tax for Irish s110 companies – impact for Ireland’s securitisation sector

The Minister for Finance released a statement yesterday advising of a proposed amendment to the s110 legislation applicable to Irish securitisation companies.

This is in response to recent media focus on “vulture funds” targeting loan portfolios secured on Irish property with a particular focus on the residential sector and the reported substantial write down of loans being achieved on acquisition by such structures.

The proposed amendment is aimed at s110 companies that hold or manage mortgages, loans or other financial assets including shares in Irish property companies that derive their value or the greater part of their value from Irish property. The effect of the amendment will be to restrict the deductibility of profit participating interest where that interest is payable on a loan, mortgage or other financial asset attributable directly or indirectly to Irish property. To the extent that the interest represents an arms’ length rate it remains fully deductible.

The restriction will not apply where the interest is paid by the s110 company to: a company within the charge to corporation tax in Ireland; certain types of offshore funds classified as distributing funds; pension schemes and contracts for dependants or for life assurance that are approved by the Irish Revenue Commissioners; PRSAs; pension schemes that are located in another EU Member State and approved by the Irish Revenue Commissioners; and to a person resident in an EU or EEA Member State.

The proposed amendment applies to profits earned from Tuesday 6 September 2016. Where the s110 company holds other assets not impacted by this proposed amendment then an apportionment of expenses between the separate activities carried on by the company will be necessary. The apportionment will be required to be carried out as though the activity relating to loans, mortgages or other financial assets attributable to Irish property, and on which the profit participating interest is payable, is carried on by an entity that is separate and independent from that holding or managing the assets not impacted by the proposed amendment.

The press release issued by the Department of Finance to announce the proposed amendment acknowledged the use of securitisations as a support to financial intermediation and that the intention behind introducing the securitisation regime here, to improve Ireland’s overall financial services offering, has been achieved. The aim of addressing the perceived misuse of the s110 legislation so that they are ring-fenced for bona-fide securitisation purposes is emphasised, as is the essential nature of the securitisation and funds industries to Ireland’s financial services sector. The statement is a strong indication of the Minister’s ongoing commitment to the sector overall.