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Ireland enhances its structured finance offering

AUTHOR(S): Alan Keating, Gerry Thornton
PRACTICE AREA GROUP: Tax, Structured Finance and Derivatives
DATE: 01.04.2011

Ireland has extended the asset classes which Irish structured finance companies (frequently referred to as ‘section 110 companies’) may hold to include commodities, plant and machinery and carbon offsets.

The attraction of Irish structured finance companies is that, with careful planning, it is possible to ensure that they are effectively tax neutral and can claim a tax deduction for all accrued expenses, including any results-dependent interest. Any margin earned by the company is taxed at the rate of 25%.

The inclusion of commodities is a very welcome development, particularly as investors in structured products are increasingly seeking to diversify their investment risk by taking direct exposure to commodities. Any commodities which are dealt with on a recognised commodities exchange may now be held by Irish structured finance companies. This inclusion will also further facilitate the issuing of Shariah-compliant structured products from Ireland.

The extension of the regime to plant and machinery is also a very significant development. This will allow Irish structured finance companies to engage in securitisation of aircraft, ship and rolling stock  portfolios. It will also permit the use of other forms of debt and derivative financing to fund the acquisition of plant and machinery by Irish special purpose companies and should, in particular, benefit the aircraft leasing/financing industry.

Finally, the additional of carbon offsets, issued under both compulsory and voluntary schemes, is part of a broader initiative to develop Ireland as one of the leading global ‘green’ financial centres, building on Ireland’s existing financial services industry and expertise.

Changes have also been introduced to restrict the tax deductibility of certain interest and swap payments made by Irish structured finance companies. However, it is not anticipated that these changes (from which existing transactions are grandfathered) will impact on the vast majority of transactions.

This extension of asset classes undoubtedly enhances the range of structured finance and securitisation transactions which may be carried out through Irish structured finance companies and is a further commitment by Ireland to position itself as the location of choice for structured finance and securitisation special purpose companies.

This article first appeared in International Tax Review (1 April 2011).

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