Irish Section 110 Special Purpose Vehicle

[14] The Irish Government's response to the scandal in 2016–2017 was unusual, closing some loopholes but leaving others open, including a five-year capital gains tax (CGT) exemption to aid alternative restructuring.

Academic research in 2016–2018 showed IFSC Section 110 SPVs are largely unregulated,[24][25] operating like brass plate companies with low supervision from the Revenue or the Central Bank of Ireland.

[27][28][29] A June 2017 study published in Nature listed Ireland as one of the global Conduit OFCs which use SPVs to route funds to tax havens.

[30] In March 2018, the Financial Stability Forum showed SPVs had made Ireland the 3rd largest Shadow Banking OFC.

Instead, controls were introduced that, while less explicit, would collectively ensure Section 110 SPVs were confined to global securitisation: While IFSC law firms lobbied for the removal of i.

In this regard, more advanced and/or aggressive Irish tax-neutral vehicles, which are fully tax-free and can be operated in greater secrecy from public views, such as the Qualifying investor alternative investment fund (QIAIF), or LQIAIFs and QIFs, were not deemed suitable for the global securitisation transaction marketplace.

It goes well beyond the original classic securitisation categories and currently includes: There are three key elements relevant to structuring Irish Section 110 SPVs (as discussed in attached references):[45][46][43][47][48] These structuring elements are also discussed in more detail in the briefing notes issues by the Revenue Commissioners on Section 110 SPVs.

[49][50] In common with most securitisation vehicles, Irish Section 110 SPVs use an orphan structure in which the equity is held by an unconnected third party who has no effective rights or controls on the SPV.

The TCA 1997 legislation includes a headline tax rate of 25% on non-trading income so that the SPV is regarded as an Irish taxable entity.

[45] While the various Irish Finance Acts strengthened the rules on PPNs (the 2016 Finance Act mentions a "market rate" of interest and that structures should be created on an "arms length" bases), the effective rules, and the list of exemptions and exempted parties, allow considerable freedom in structuring PPNs to sweep up all income generated by the "qualifying assets" in the SPV (via PPN interest payments).

The orphaning process will ensure the relevant trust that "owns" the SPV equity is Irish domiciled, thus satisfying the incorporation test.

Luxembourg Leaks showed pre-approving vehicles, risks challenges under EU State aid rules, resulting in sanctions and fines.

[64] In addition, the Irish Section 110 SPV expanded its adoption and use far beyond the original securitisation market to make the IFSC the 3rd largest Shadow Banking OFC in the world.

[38][39][40][41] Successive Irish Finance Acts (2003, 2008, 2011 and 2016) extended the list of "qualifying assets" beyond the classic categories that make up the bulk of the global securitisation market.

A particular aim is enabling the PPN's to be classed as "Eurobonds" so they can be legally domiciled in Luxembourg, which has become a key "backdoor" out of the Irish corporate tax regime into a full Sink OFC.

[79][80] In February 2018, the Central Bank of Ireland changed its AIF "Rulebook" to allow L–QIAIFs hold the same assets that Section 110 SPVs could own.

[90][91] The CRO filings showed these vulture funds were using orphaned Section 110 SPVs, structured by IFSC–based law firms (e.g. Matheson, A&L Goodbody and Dillon Eustace and Mayson Hayes Curran),[7][5] who use Section 110 SPVs in securitisation work, to export untaxed income and capital gains earned on domestic Irish assets to offshore locations (via the PPN interest payments), such as the Cayman Islands.

I would say that there is no need for panic as there is a long-established procedure in place in the legislation and the only issue is to establish whether the SPV a company is paying to is a Section 110 company.Stephen Donnelly TD, called for a Dáil investigation and produced calculations[8] based on the €80 billion of published loan balances sold by the National Asset Management Agency (or "NAMA") to the US funds for circa €40 billion.

[109][13][96] The Irish Times calculated the total economic contribution of Section 110 SPVs since their creation, would be vastly exceeded by these tax losses.

[110] The affair escalated into a major public scandal during 2016,[14][111] and was covered as such in the international media,[9][10] and in several Irish RTÉ Prime Time Investigates programs.

The Irish Government claimed that the U.S. funds had discovered unknown but legitimate loopholes, which they moved to close in the 2016 Finance Act.

They could also transfer their Section 110 assets into a more confidential QIAIF (and later, an LQIAIF), also using the 5–year CGT exemption to avoid incurring taxes while restructuring.

The Central Bank of Ireland had begun a process to upgrade the tax-free L–QIAIF regime in November 2016 (just after Minister Noonan closed the "perceived" Section 110 loopholes).

[82] In March 2019, the UN Special Rapporter on housing, Leilani Farha, formally wrote to the Irish Government on behalf of the UN, regarding its concerns regarding "preferential tax laws" for foreign investment funds on Irish assets which were compromising the human rights of tenants in Ireland.

[122][35] Research by Trinity College Dublin Professor Jim Stewart and Cillian Doyle show Section 110 SPVs are effectively unregulated and attract little oversight by the Irish Revenue or Central Bank.

[123] Of particular note in this research was:[25] Stewart and Doyle's academic papers on Irish Section 110 SPVs highlight the combination of an anonymous (via orphaning), and tax-free (via the Profit Participation Notes), OECD–whitelisted wrapper, in an effectively unregulated environment, which has coincided with Ireland's position as the world's 4th largest Shadow Banking OFC.

[27][28][126][29][127] The ex-Deputy Governor of the Central Bank of Ireland said the risks of Section 110 SPV abuse are not appreciated by the Irish Government.