The Section 110 regime in its current form was inserted by Finance Act 2003. It was introduced to facilitate structured financial products, including the securitisation of loan books by banks and was designed to provide a tax neutral structured finance vehicle.
An effective securitisation regime is vital to the efficient working of the financial service industry. It enables banks and other financial companies to raise money from the capital markets more economically and also frees up capital for further lending by those institutions. The section 110 regime was also designed to improve Ireland's offering as a location for the conduct of financial services.
However, a concern arose about the use of the regime by international investors to reduce their Irish tax liabilities on Irish property backed transactions. Section 22 of the Finance Act 2016 (an amendment of section 110 Taxes Consolidation Act 1997 (TCA 1997)) was thus introduced to address the concerns about the use of the section 110 regime by international investors for the distressed debt that they had purchased from financial institutions.
The amendments made in Finance Act 2016 will ensure that tax will be payable by section 110 companies on their profits from Irish property transactions from 6 September 2016 onwards.
The measure has the effect that for the purposes of section 110 TCA 1997 the use of profit participating loans will be restricted where they are used by qualifying companies relating to Irish property transactions. The final proposal does not permit the section 110 companies to 'mark to market' or revalue their assets on 5 September 2016 ensuring that unrealised gains will be captured in the charge to tax.
The final legislation as passed meets the original policy objective of the protection of the Irish tax base whilst not encroaching on bona fide securitisations.
