Section 110 of the Taxes Consolidation Act 1997 is the section of the corporate tax code which creates a tax neutral regime for bona-fide securitisation and structured finance purposes. Ireland is not unique in having a specific regime for securitisations. The importance of securitisation has been recognised by the European Commission through their work on the Capital Markets Union. This is a European Commission initiative to mobilise capital in Europe, a main objective of which is to build a sustainable securitisation regime across the European Union.
Securitisation involves the creation of tradeable securities out of an income stream or projected future income stream generated by financial assets. Securitisation allows banks to raise capital and to share risk and, by providing a repackaging and resale market for corporate debt, it lowers the cost of debt financing. Such financing is useful for the productive economy as it can underpin the supply of finance to industries and companies in Ireland, Europe and further afield.
It is important to note that there is nothing specific in the Section 110 framework that is of particular relevance to Russian investors or originators and such vehicles are a common feature of financial service centres.
In relation to Central Bank regulations, certain section 110 companies may be required to publish a prospectus under Regulation (EU) 2017/1129 (the “Prospectus Regulation”), where an issuance of securities fall under its scope. The Prospectus Regulation applies to persons:
- Seeking admission of securities to trading on an EEA regulated market, including the Irish Stock Exchange plc, trading as Euronext Dublin, or
- Making an offer of securities to the public within the EEA, albeit not seeking admission to trading on an EEA regulated market.
The Prospectus Regulation harmonises requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The objective of the Prospectus Regulation is to ensure investor protection and market efficiency, in accordance with high regulatory standards. The Central Bank is the Competent Authority in Ireland with responsibility for the scrutiny and approval of prospectus documents under the Prospectus Regulation. The Central Bank scrutinises the prospectus to ensure it meets all of the disclosure requirements set out in the legislation and must approve the prospectus prior to commencement of the listing or offer of the securities to the public.
Separately, Special Purpose Entities (SPEs) that carry out activities listed under Schedule 2 – a comprehensive list of financial activities of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 - are subject to supervision by the Central Bank for Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) purposes. Such firms are referred to as “Schedule 2 firms”. Firms obligated to register include those which participate in securities issues and the provision of services relating to such issues. An SPE is required to report to the Central Bank if it is an SPE which predominantly engages in securisations, and if it avails of the tax provisions of section 110.
Schedule 2 firms are subject to the Central Bank’s minimum engagement model and are supervised in accordance with this model. During the course of this supervision, where weaknesses in the AML/CFT frameworks are identified in Schedule 2 firms, the supervisors issue findings that the Schedule 2 firms are required to implement. The Central Bank conducts supervisory activities to ensure that Schedule 2 firms are complying with their statutory obligations. These activities include:
- Conducting on-site inspections and other supervisory engagements across the financial sector to effectively monitor that there is compliance and effective implementation of the relevant statutory obligations;
- Ensuring compliance with the requirements under the Criminal Justice Act 2010 to adopt and implement policies and procedures for the assessment and management of risks of money laundering and terrorist financing;
- Inspection of policies and procedures, and confirmation that senior management (including boards of directors) can demonstrate full awareness of their responsibilities;
Separately, where an SPE is linked to an investment fund resident in Ireland, it is subject to the relevant investment fund regulations and requirements.
I now refer to section 110 company’s compliance with EU sanctions. All natural and legal persons in the State are obliged to ensure compliance with EU sanctions. This includes section 110 companies. A breach of financial sanction is a criminal offence. The Central Bank of Ireland, as the competent authority for financial sanctions, is undertaking work in relation to firms with links to Russia. Should the Central Bank identify, or have a suspicion of, a breach of sanctions it will report that to An Garda Síochána, as the investigative authority.
I am advised by Revenue that it carries out a programme of risk focused compliance interventions on section 110 companies, to monitor the regime and to satisfy itself as to the accuracy or otherwise of tax returns filed by these companies and to ensure they continue to meet all qualifying conditions. In line with its overall tax compliance monitoring programme, Revenue has a multi-faceted approach to tackling non-compliance. Compliance interventions range from non-audit compliance Interventions, such as appraisals, aspect queries, and profile interviews, to audits and investigations. As with all tax compliance interventions, Revenue will take appropriate action, including making assessments and seeking penalties and interest, where evidence of non-compliance is found to exist.
I am advised that Revenue has taken appropriate steps to identify section 110 companies subject to or linked to individuals, groups or entities subject to EU sanctions on Russia and Belarus in connection with Ukraine. Revenue has the necessary procedures and processes in place to ensure full adherence with its obligations under EU sanctions rules.
As respects section 110 companies identified as possibly linked to entities/individuals on the EU sanctions list, there have been 37 compliance interventions and 65 risk appraisals closed in respect of such companies in the last 5 years (none of which were formal audits). One compliance intervention is ongoing in respect of such a company.
