Irish SPVs Holding Irish Property Assets
The Irish Minister of Finance announced on 6 September 2016 a series of highly targeted measures to amend tax rules that apply to qualifying companies within section 110 of the Irish Taxes Consolidation Act, 1997 ("Irish SPVs").
The measures are focused exclusively on Irish SPVs which hold loans, shares or other financial assets which derive the greater part of their value from Irish real estate, whether residential or commercial ('Irish property assets'). Consequently, the changes will not affect most mainstream international structured finance transactions.
The holding and managing of such Irish property assets by the Irish SPV will now be termed an "Irish property business".
With effect from 6 September 2016, the Irish property business will be treated as a separate business of the Irish SPV. Payments of interest that are profit dependent or are not arm's length will not be deductible in calculating the profits of that Irish property business, subject to certain safe harbours including broadly where payments are made to an Irish or EU person. The rules will only apply to the calculation of profits arising after 6 September 2016.
This will have an impact on Irish SPVs established to hold Irish distressed loans and mortgages. Directors and managers on such structures should review and consider the impact in their specific case and what approach might be taken.
The new measures will not affect Irish SPVs holding assets that do not derive their value from Irish land. The vast majority of Irish SPVs will not be affected. This includes Irish SPVs holding assets such as international loans, financial assets like shares and derivatives, aircraft and aircraft leases, and commodities, and Irish SPVs engaged in internationally focused CLOs and securitisations.
The Irish authorities have reiterated that they recognise the importance of the Irish SPV or securitisation regime in the context of Ireland's financial services industry. They are an important component underpinning the supply of finance to business in Ireland, Europe and further afield. This is also recognised in the European Commission Capital Markets Union Action Plan which states that the promotion of non-bank financing will mobilise capital in Europe and achieve deeper and more integrated capital markets which will lower the cost of funding and make the financial system more resilient.
Draft legislation to enact the above changes will be included in the Finance Bill that will be published in mid-October 2016. The Bill would typically be signed into law by the end of the year.
The Minister noted that further targeted proposals in relation to the use of Irish investment funds in the Irish property market are also being considered.