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Expansion of Irish Section 110 Regime to include Aircraft Assets

AUTHOR(S): Chris Quinn
PRACTICE AREA GROUP: Aviation Finance and Transportation
DATE: 24.01.2011

The Finance Bill 2011 (the “Finance Bill”) was published by the Irish Minister for Finance on 21 January 2011. The Bill proposes a number of amendments to Ireland’s structured finance and securitisation framework, which is contained in Section 110 of the Taxes Consolidation Act 1997 (“Section 110”). It is expected that the Finance Bill will be signed into law over the coming weeks.

Section 110 has been used in Ireland in relation to securitisation and structured finance transactions for a number of years and is viewed as a very successful regime which has put Ireland at the forefront of these markets. It is critical in any structured finance transaction to minimise any potential taxation leakage which might affect the return for investors. The optimum taxation treatment may be achieved if a company is regarded as a “qualifying company” for purposes of Section 110. Some of the preferential tax treatments available include:

(a) a qualifying company can compute its taxable profits as if it were a trading company. This means that although the income of a qualifying company is prima facie taxable, deductions are to be available for revenue expenditure of the company. This ensures that, provided a transaction is structured properly, the Irish company can achieve profit neutrality and, in turn, tax neutrality.

(b) interest payments on profit participating notes or sweeper notes are not recharacterised as distributions and therefore such interest will be deductible.

This regime has now been expanded to include aircraft assets.

The Finance Bill extends the definition of “qualifying assets” (i.e. the assets which a Section 110 qualifying company may acquire, manage and/or hold) by including carbon offsets, commodities and plant and machinery. “Plant and machinery” is not defined in the Finance Bill but would include aircraft, ships, rolling stock and other forms of chattels. This is a very welcome development and should benefit the aviation leasing and financing sector.

In short the changes introduced in the Finance Bill mean:

(a) that any future securitisation of aircraft assets can involve Section 110 Irish companies.

(b) the trading analysis is simplified where a Section 110 company is utilised.

(c) any concern over whether variable income could be recharacterised as a distribution is removed and such income can be structured through the use of profit participating/sweeper notes in order to be deductible.

Ireland is recognised as a centre of excellence for aircraft finance transactions and the expansion of Section 110 to include aircraft assets further bolsters Ireland position in this regard and demonstrates the Irish government’s commitment to the promotion of the aircraft industry in Ireland.



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