Section 110 securitisation in Ireland

Originally designed as a tax-neutral regime for the holding of mortgages, there have been numerous changes since its inception. This has expanded the types of assets they may hold and introduced certain anti-avoidance elements. Throughout these changes, maintaining tax neutrality has remained a fundamental objective.

The latest figures published by the Department of Finance indicate that 1,722 companies filed their 2021 corporation tax returns under the Section 110 designation.

Why has the Section 110 regime been so successful?

There are five key reasons for the success of the regime:

1. Favourable tax treatment: The tax incentives available to Section 110 entities are very attractive.
2. Established infrastructure: Over the years, Ireland has developed a robust infrastructure to support securitisation activities under the Section 110 regime.
3. Reputation as a jurisdiction: Ireland's membership in the EU and OECD positions it as a reputable jurisdiction rather than an offshore location.
4. Extensive treaty network: Section 110 companies typically benefit from Ireland's extensive double taxation treaty network (74 countries are in effect with a further 2 agreed), which helps minimise potential withholding tax liabilities.
5. Legal framework and language: Ireland's English-speaking environment and common law system are advantageous for investors, particularly those from the US and UK.

How does the Section 110 regime work?

Section 110 companies are entitled to hold qualifying assets which include financial assets (shares, bonds and other securities, futures, options, swaps, derivatives and similar instruments, invoices and all types of receivables, obligations evidencing debt (including loans and deposits), relevant receivables and loan and lease portfolios, hire purchase contracts, acceptance credits and all other documents of title relating to the movement of goods, bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments, carbon offsets and contracts for insurance and reinsurance), commodities or plant and machinery.

Unlike other Irish investment holding companies, Section 110 companies are generally entitled to a deduction for any costs incurred ‘wholly and exclusively’ for the purposes of the business. In addition to this, subject to meeting certain anti-avoidance conditions, Section 110 companies are entitled to a deduction for profit participating interest or interest in excess of a reasonable commercial return which are usually reclassified as a distribution under Irish tax rules.

This allows Section 110 companies to sweep out profits in the form of profit participating interest leaving a minimal amount of retained profit which is subjected to tax at 25%.

Who uses Section 110 companies?

Section 110 companies can be used for a wide range of transactions including:

• Securitisations
• Collateralised loan obligations (CLOs)
• Structured finance
• Aircraft leasing
• Holding vehicle for regulated funds
• Intra-group financing
• RMBS/CMBS
• Insurance and reinsurance

At Mazars, we have a wealth of experience in advising clients on the setup of Section 110 companies and assisting them with any ongoing requirements. Our services include:

• Tax advisory
• Consulting
• Audit and assurance
• Tax compliance
• Financial accounting
• Payroll

For more details on the Section 110 regime, please do not hesitate to contact our financial services tax team.