Finance Bill 2016 – Section 110 Companies And Irish Property Loans

Author:Mr Andrew Quinn, William Fogarty, Stephen McLoughlin and Nollaig Murphy
Profession:Maples and Calder

On 20 October 2016, the Irish Minister for Finance published the Finance Bill 2016. The Finance Bill includes proposed changes to section 110 of the Irish Taxes Consolidation Act, 1997 ("section 110"), the primary tax legislation governing the treatment of Irish securitisation and structured finance companies.

The proposed legislation follows on the announcement of these measures on 6 September 2016, which are addressed in a previous Client Update. The Finance Bill measures contain some important modifications to the proposed legislation published on 6 September.

To recap, the measures are intended to address profits arising from loans deriving the greater part of their value from Irish land (defined as "specified mortgages") and specifically to disallow certain profit dependant or excessive interest payments incurred as part of that business. The vast majority of transactions carried on by section 110 companies are therefore completely unaffected by these measures.

It was always the stated policy objective of the Irish authorities that bona fide securitisations were not affected by the proposed measures. To that end, the Finance Bill has now significantly broadened the safe harbours for such securitisations. This follows considerable consultation between the Irish Debt Securities Association and industry generally with the Irish authorities.

Specific measures

The Finance Bill legislation includes three new safe harbours:

  1.  a CLO transaction; 2. a CMBS/RMBS transaction; and 3. a 'loan origination' business.

    In broad terms, if the activity of the section 110 company falls within one or more of these three categories, then the new measures introduced for Irish property loans will not apply and the existing beneficial tax treatment continues.

  2.  CLO transaction Broadly, a CLO transaction is a securitisation transaction entered into which is carried out in conformity with: (a) a prospectus, within the meaning of Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003, (b) listing particulars, where any securities issued by the section 110 company are listed on an exchange, other than the main exchange, of a relevant EU Member State, or (c) otherwise, legally binding documents; that provide for: (i) a warehousing period, which means a period not exceeding 3 years during which time the section 110 company is preparing to issue securities, and (ii) investment eligibility criteria that govern the type and...

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