As was set out in the 2014 Report on Tax Expenditures, the definition of a tax expenditure in Irish legislation draws on an OECD definition and describes a tax expenditure as a transfer of public resources that is achieved by: (a) Reducing tax obligations with respect to a benchmark tax rather than by direct expenditure; or (b) Provisions of tax legislation that reduce or postpone revenue for a comparatively narrow population of taxpayers relative to the tax base.
In order to identify a tax expenditure, a baseline is needed against which a tax reducing measure can be recognised as either part of the 'normal' tax structure or as a tax expenditure. The section 110 regime is not viewed as a tax expenditure and has not been included as same in reports that my Department have published relating to tax expenditures alongside the last two Budgets. As the section 110 regime is not viewed as a tax expenditure no ex-post or ex-ante evaluations have been required or carried out in respect of the regime.
The rationale for not deeming section 110 a tax expenditure is due to the fact that is part of our normal tax structure. It is the legal framework for Ireland's securitisation industry which is a key feature of tax regimes internationally. Section 110 sets out a regime for the taxation of special purpose companies set up to securitise assets. The tax provisions are intended to ring-fence the use of section 110 companies for bona-fide securitisation purposes and structured finance purposes.
The features of the regime are that:
- The company must be tax resident in Ireland and carry on the business of holding or managing "qualifying assets";
- "Qualifying assets" for Section 110 purposes includes a broad range of financial and other assets including shares, bonds, derivatives, loans, deposits, commodities, plant and machinery and invoices and other types of receivable;
- The value of "qualifying assets" must be at least €10 Million at the time they are acquired by the Section 110 company;
- Apart from the holding or managing of the "qualifying assets" the company cannot carry on any other activities.
