In recent years, Ireland has become a popular jurisdiction
for the establishment of SPVs for structured finance
transactions, particularly for repackagings, synthetic and cash
flow collateralized debt obligations (CDOs), asset-backed
commercial paper programmes, credit card receivables, mortgages
and a host of other receivables financing transactions.
Favourable tax laws allow the structures to be, in most cases,
tax neutral and a quoted Eurobond exemption, together
with an extensive range of domestic provisions and double
taxation treaties, allows interest on debts to be paid gross in
most cases. However, Ireland is not a tax-free jurisdiction and
careful tax planning is required at an early stage of any
transaction. Once the optimum tax treatment is achieved
however, an SPV located in Ireland benefits from the fact that
it is an EU issuer located in an onshore jurisdiction.
How are SPVs typically structured?
Two types of vehicle are commonly used in Ireland, the
private limited liability company and the public limited
company (plc). Whether or not a public offer of securities will
be made by the SPV will generally determine which type of
vehicle is used for any given transaction. For an Irish company
to issue securities to the public, it is required to be a plc.
Most transactions therefore will require a plc but if
securities are not being issued by the SPV, or are being
offered to a small number of investors only (about 25 offerees
in a two-year period), a private limited liability company can
Irish SPVs are usually set up as orphan companies with their
shares being held on charitable trust by a share trustee.
What is the procedure for incorporating
Incorporation of an Irish SPV is a relatively simple
process, ordinarily requiring the following documents:
- memorandum and articles of association;
- corporate services agreement;
- charitable declaration of trust;
- board minutes approving the incorporation process;
- application to the Irish Companies Registration Office
- application for a trading certificate (required by a plc
- notification to the Irish Revenue Commissioners under
section 110 of the Taxes Consolidation Act, 1997 (after
SPVs are required to have at least two individuals acting as
directors (one of whom must be resident in Ireland for tax
purposes, although it is recommended that a majority of the
directors be Irish tax resident) and either two or seven
shareholders, depending on whether the vehicle is a private
limited liability company or a plc. Directors, shareholders,
share trustees and secretarial services are generally provided
by the SPV's corporate service provider. Irish SPVs are
required to have their annual financial statements audited.
From a timing perspective, it is recommended that the
process of incorporation of a plc be commenced not less than 20
days before the anticipated closing date. This is to allow
enough time for the company to be formed and a trading
certificate to be obtained. Private limited liability companies
can generally be incorporated within a two-week period.
The name of the SPV must be approved by the Irish Companies
Registration Office before the name can be used and cannot be
reserved in advance.
On most transactions, it is not necessary for the SPV to
obtain any licences or government approvals.
What are the registration, filing and other
regulatory fees and costs associated with incorporating an
A plc is required to have a share capital of about
€39,000 ($47,000), paid up to one-quarter. Therefore,
before closing, a plc will need to be capitalized in a minimum
amount of about €9,750. However, this money is available
to the SPV to be used in its business (to pay administrator and
audit fees, for example) and is not, as such, a cost of
incorporation. Excluding legal fees, it costs about €760
to incorporate a plc.
Private limited liability companies require a minimum share
capital of €2 and can be incorporated at a cost, excluding
legal fees, of €60.
There are a number of institutions operating in Dublin which
provide corporate services to SPVs. The charges of SPV
administrators vary depending on the complexity of a
transaction but generally amount to about €18,000 to
€20,000 a year. Auditors charge about €12,000 a
In addition, it is worth noting that there are no
thin-capitalization rules for SPVs in Ireland and therefore no
maximum limit to the value of assets which can be
How are SPVs taxed?
The predominant reasons for Ireland's popularity as an SPV
location are its favourable tax regime, the fact that it is an
onshore jurisdiction and the professional and administration
services that are available locally. The following tax points
are of particular relevance.
Entity-level tax - section 110 of the Taxes
Consolidation Act 1997
It is essential to ensure that the SPV is tax neutral. While
the SPV itself is liable to corporation tax at 25%, the tax is
applied on the SPV's net taxable profit, which, with careful
structuring, is generally maintained at a negligible level as
there is no minimum profit required for tax purposes. This is
achieved by having the SPV's tax deductible expenditure equal
to its income. The relevant tax legislation, which is contained
in section 110 of the Taxes Consolidation Act, 1997, was
radically overhauled in the Finance Act 2003, making possible a
wider variety of asset-backed transactions than was previously
the case. In short, Section 110 provides that the taxable
profits of a company (a qualifying company) involved
in the holding or management of qualifying assets
should be computed on the same basis as a trading company.
Consequentially, the cost of funding and other related
expenditure is tax deductible. In addition, swap payments,
payments to service providers and payments made under certain
subordinated loans (see profit extraction below) will in most
cases also be tax deductible.
A qualifying asset consists of any financial asset,
or any interest in a financial asset. Financial assets
are defined to include the following:
"shares, bonds, other securities, futures, options, swaps,
derivatives and similar instruments, invoices and all types of
receivables, obligations evidencing debt (including loans and
deposits), leases 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."
The range of assets is extensive, thus most structured
finance vehicles can qualify as Section 110 companies in such a
way that the transaction will be tax neutral. As a result,
Ireland is an ideal jurisdiction for locating an onshore,
EU/OECD issuer with no tax leakage.
Some of the other beneficial amendments introduced in 2003
that have assisted structured finance transactions in Ireland
(i) Equity tranches/pass through structures: A relaxation of
the rules regarding payments of interest on securities, the
return on which depends on the results of the SPV (for example,
the equity tranche of a CDO), so that such payments will not
automatically be deemed to be distributions (and therefore
(ii) Minimum size: There is now only a requirement that
qualifying assets be acquired or held with a minimum value of
€10 million ($12.2 million) on the date they are first
acquired or held (this is a cumulative threshold for all
qualifying assets held by the SPV). This will be of particular
benefit for multi-seller transactions where not every seller
can meet this threshold and for smaller trades under
(iii) Acquisition of assets: A qualifying company
has been redefined as a:
"company resident in Ireland which (i) acquires qualifying
assets from a person or, (ii) as a result of an arrangement
with another person, holds or manages qualifying assets or
(iii) enters into a legally enforceable arrangement with
another person which arrangement itself constitutes a
SPVs will now be able to subscribe for securities issued by
the originator rather than having to acquire them from a third
party. In addition, entering into a credit default swap is now
the recognized securitization activity, as opposed to the
ancillary acquisition of assets, under repo arrangements for
example, which was previously the qualifying activity.
It is obviously crucial to any structure that payments to
investors can be made gross and not be subject to any
withholding. If the securities are issued in bearer form, carry
a right to interest, are listed on a recognized stock exchange
and are either held in a recognized clearing system or payments
in respect of the securities are made through a paying agent
located outside Ireland, then payment on the securities will
qualify for the quoted Eurobond exemption and may be
made gross. Alternatively, investors can rely upon the Irish
domestic exemption from withholding tax for SPVs, which permits
interest payments made to a person resident in an EU member
state (other than Ireland), or a country with which Ireland has
a double tax treaty, to be made free from withholding tax. This
exemption applies automatically without any application being
In addition, the Finance Act, 2003 also extended exemptions
from withholding tax for notes with denominations of
€500,000 or more issued by an SPV with a maturity of less
than two years in various circumstances, including where the
notes are held in a recognized clearing system and a paying
agent located outside Ireland is used or where a foreign
noteholder provides a declaration of their residence.
In circumstances where registered securities are required to
be issued (for example where securities are being sold into the
US market) then a certificate-less depositary instrument (CDI)
structure can be used.
On the assumption that the SPV remains a qualifying company
for the purposes of the applicable legislation, stamp duty will
not apply on the issue or transfer of notes. Stamp duty (at
rates of up to 9%) can apply on the transfer of Irish assets,
but should not be payable on the transfer of non-Irish assets.
Minimal stamp duty (up to €630) is potentially payable on
any instrument creating security over Irish assets.
Value added tax (VAT)
SPVs are engaged in exempt activities, and so will generally
have limited ability to recover any VAT charged to them. The
publication of the Finance Bill, to be enacted in early April
2004, provided eagerly awaited confirmation that management
services (for example, portfolio management fees) supplied to
an SPV, whether by an originator or otherwise, can be supplied
exempt from Irish VAT.
Efficient profit extraction is crucial to any structured
finance transaction. Extraction of profits by means of
appropriate service fees, swaps and subordinated loans are all
generally tax deductible.
To avail of the Section 110 treatment, it is necessary for
an SPV to notify the Irish Revenue Commissioners and confirm
that it satisfies the conditions in Section 110. This is simply
a notification and self-certification process and no return
approval is required. The Irish Revenue Commissioners have also
proved extremely helpful and may issue confirmations in respect
of the tax treatment of SPVs in certain cases, especially where
a particular transaction structure is novel. However, unlike
other jurisdictions, there is no requirement to obtain a tax
ruling before proceeding.
Double tax treaties
Ireland is also party to an extensive range of double
taxation treaties that, depending on the particular treaty, can
ensure that the SPV receives income on its underlying assets
free from withholding tax. Avoiding tax leakage in this manner
is very important to a transaction.
How stable is the legal and tax regime regulating
the incorporation and use of SPVs incorporated within the
Ireland is a member of the EU and also of the OECD. For many
originators and potential investors, this is one of the more
significant advantages of locating an SPV in Ireland. Investors
in some jurisdictions may want to purchase debt issued by
EU/OECD issuers only, and the inability to access those
investors if the SPV is located elsewhere may affect the
pricing of the transaction.
In addition, there is an international trend away from
investing in so-called tax havens. Some investors take comfort
from the facts that Ireland is not a tax haven and that it has
a developed corporate legal system and tax structure.
Like the UK and the US, Ireland is a common law jurisdiction
and its legal concepts will be recognized by most investors,
originators and advisers. It has a AAA rating from Standard
& Poor's. Ireland recognizes the concept of a trust and the
laws in this regard are similar to the laws of England. In
addition, the laws relating to personal property and the
transfer of assets and the concepts of legal and equitable
title are similar to those in England.
Can securities, issued by SPVs, be listed on the
local stock exchange?
Issues of securities by both Irish private limited liability
companies and plcs may be listed on the Irish Stock Exchange
(although issues by private limited liability companies must
comply with the private placement rules).
Can the jurisdiction draw on a ready pool of
experienced financial and legal professionals to incorporate
Ireland has benefitted from substantial growth and
investment over the past 10 years and its economy in that
period has been the best performing in Europe.
In addition, many of the lawyers involved in financial
services in Dublin previously worked with international law
firms in London and New York and have substantial experience
working for issuers and arrangers on English or New York
law-governed structured finance transactions. This experience
means that Irish lawyers tend to have an in-depth understanding
of how such structured finance transactions work.
Also, Irish regulators and authorities, including the
Revenue Commissioners and the Irish stock exchange, have shown
a keen understanding of the structured finance market and a
willingness to facilitate its progress. The provisions of the
Finance Act 2003 greatly changed the tax position in Ireland
and the latest Finance Bill has proposed changes to VAT
legislation that will greatly help CDOs in Ireland.
What advantages are there for issuers looking to
incorporate an onshore or offshore SPV in the
In no particular order, the following are the principal
advantages of locating SPVs in Ireland for structured finance
- Ireland is an EU/OECD onshore jurisdiction (many
investors demand this now).
- The cost of incorporation is low and share capital can be
used to pay transaction costs.
- SPVs are generally tax neutral: it is easy to structure
to avoid withholding tax; Ireland has an extensive range of
double tax treaties; and VAT and stamp duty are generally not
- No minimum profit is required.
- No government/regulatory approvals are required.
- Ireland's corporate legal and tax systems are highly
- It is a common law jurisdiction; many legal concepts are
similar to those in England and therefore familiar to most
investors, originators and advisers.
- Sophisticated professional and administration services
are available locally.
- Regulators and authorities are supportive of the
By virtue of its favourable tax and corporate laws and its
status as an EU/OECD member, Ireland is the ideal location for
the establishment of an issuance vehicle for a wide range of
structured finance transactions.
About the authors
Formerly a capital markets partner with Allen & Overy,
Glenn Butt specializes in all forms of capital markets
transactions, particularly repackagings, collateralized debt
obligations, bond issues, debt issuance programmes, derivatives
and equity linked products such as convertibles and
exchangeables. He also advises on a range of banking and
security issues and on the capital markets aspects of
Telephone: +353 1 618 0549
Caroline Devlin specializes in tax and international
financial services. She advises domestic and international
companies on tax planning, including tax aspects of
acquisitions and reorganizations, and also has extensive
expertise in securitizations and other structured products.
Telephone: +353 1 618 0585
Cormac Kissane is a partner in the Banking Group at Arthur
Cox and head of the firm's securitization practice. Prior to
working at Arthur Cox, he worked at Clifford Chance and Sidley
Austin Brown & Wood. He has advised on a wide variety of
securitization and other structured finance transactions for
many different originators and arrangers. His experience
includes residential mortgage-backed and commercial
mortgage-backed securitizations, corporate loans, trade
receivables and whole-business securitizations. He has also
advised on the establishment of commercial paper conduits in
Europe and the US and the establishment of structured
Telephone: +353 1 618 0529
Conor Hurley recently joined Arthur Cox as a senior tax
partner and Head of Tax, having previously been a tax partner
at international firm Linklaters since 1991. He has advised on
the tax aspects of international and domestic mergers and
acquisitions, financial products, repackagings and structured
finance, banking, capital markets, investment funds, recovery
and insolvency transactions and other areas.
Telephone: +353 1 618 0577