The Irish Finance Bill 2003 was published on February 6 2003 and contains the long-awaited beneficial changes to the existing Irish securitization legislation. The intention behind the changes (which come into force with immediate effect) is to make Ireland the jurisdiction of choice for the location of special purpose vehicles (SPVs) for structured finance transactions.
The main features of the new legislation can be summarized as follows:
The SPV can now carry on the business of holding or managing (or of both the holding and managing of) financial assets. Previously the SPV was required to manage financial assets.
Financial assets are defined as including:
- 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);
- leases and loan and lease portfolios;
- hire purchase contracts;
- acceptance credits and all other documents of title relating to the movement of goods; and
- bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments.
The financial assets can be acquired from anyone and anywhere or can be created by the SPV entering into legally binding obligations with any person. Previously the financial assets had to be acquired by the SPV.
All payments of interest by the SPV will now be deductible for tax purposes. Previously results-dependent or excessive interest was recharacterized as a distribution and hence was non-deductible.
The first transaction entered into by the SPV must involve assets with a market value of at least €10 million ($10.78 million). After the first transaction there is no financial requirement for future transactions. Previously every transaction with a new counterparty had to have a value of more than €12.69 million.
The Finance Bill also incorporates further technical changes that improve the existing legislation in relation to the ability of the SPV to claim a deduction for bad debts and to carry forward any losses incurred by the SPV.
The Finance Bill includes an exemption from Irish withholding tax on payments of interest by an Irish securitization SPV to any person who is resident in an EU member state (other than Ireland) or any country with which Ireland has entered into a double tax treaty. Previously, such an exemption was only available in respect of interest paid to a corporate body resident in an EU member state (other than Ireland) or resident in a country with which Ireland has entered into a double tax treaty.
As stated above, the intention behind these changes is to encourage the use of Ireland as a location for the incorporation of tax neutral SPVs for securitization, repackaging, warehousing and other structured finance transactions. As no rulings or authorizations are required from the Irish tax authorities in order to avail of the new legislation, this should make Ireland a particularly attractive jurisdiction when compared to other on-shore SPV locations.
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