DUBLIN: The Irish Finance Department has said that it will publish its final amendments to Section 110 of the Taxes Consolidation Act on October 20, as part of its crackdown on so-called vulture funds.
Section 110 governs the taxation of special purpose companies set up to securitize assets. There have been reports that some companies are using the Section 110 rules to avoid tax on Irish property tax transactions.
In September, Finance Minister Michael Noonan proposed reforms “to address the perceived misuse of Section 110 and to ensure that the tax provisions are ring-fenced for bona-fide securitization purposes.” However, in last week’s Budget speech, he said he was “aware that further amendments are necessary to address other issues arising in relation to Funds and property.”
“When this section was introduced the intention was that it would benefit the financial services industry, and it has done so. It is now being used in relation to property in a way that was never intended,” Noonan explained.
The Finance Department has now confirmed in a statement that the final amendment will be introduced in the Finance Bill on October 20.
The Department told industry journal Finance Dublin: “Over the past number of weeks, officials from the Department of Finance and the Revenue Commissioners have engaged constructively and at length with the main interest groups in this area, including the legal firms, accountancy and tax advisory firms, the Irish Debt Securities Association, and the Irish Funds Industry Association. This was to ensure that the final amendment was targeted in such a manner to exclude bona fide securitizations.”
A Section 110 company must be tax resident in Ireland and carry on the business of holding or managing “qualifying assets,” which must be at least EUR10m (USD11m) at the time they were acquired.
The profits or gains of a Section 110 company are subject to corporation tax at 25 percent. This is the rate for passive income, but the taxable profit is calculated using the normal rules that apply to trading activities. A Section 110 company is allowed a full deduction for interest paid, in recognition of their role in raising funding for the originator of the securitization.
