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Securing the benefits of Section 110 - Irish Debt Securities Association comments on the measures proposed for the 2017 Finance Bill Back
The Chief Executive of the Irish Debt Securities Association, Gary Palmer, writes on the forthcoming Budget amendment to Section 110, in the October edition of Finance Dublin
Who’d have thought that a section of the tax code would become a headline grabbing phenomenon? In early September, Minister Noonan announced that there would be an amendment to Section 110 (S110) and since then, it feels like S110 has hardly been out of the news. It is said there is no such thing as bad publicity. I’d like to disagree. Try typing “Section 110” into a search engine and that myth will soon be dispelled!

The actual amendment will be part of the Finance Bill, and until it is published, the full implications won’t be known. Unsurprisingly, international investors have expressed grave concern at the direction of Irish tax policy on the back of the proposed changes. Ireland is now considered out of step with international norms in terms of how foreign lenders are taxed and this will make Ireland unattractive to international lenders and international financing transactions. The concern is being expressed generally that other Irish tax measures important to foreign direct investment in Ireland could also be changed, with no grandfathering and little notice simply due to local media reportage, incomplete political comment and generally inaccurate commentary. Specifically, investors are concerned as to the future of Irish securitisation and structured finance companies. This is a highly mobile industry which will move if the uncertainty surrounding Section 110 continues. With respect to the immediate implications, it has been reported that pan-European transactions with no Irish property related element that were previously to be carried on in Ireland are moving to other EU jurisdictions.

As mentioned, the actual implications will only become known following the publication and application of the amendment itself. But one thing is sure, a lot of work needs to be done to restore and rebuild the international reputation and perception of Ireland as a location for international financial services and this needs to start now. During all the discussions there has been little consideration as to what S110 is and the significant role it, and other similar measures, provides to the facilitating of international financial services and this is where the rebuilding needs to start.

What is S110? It is simply the framework for securitisation, structured finance and Special Purpose Vehicles (SPVs) in Ireland. Most European countries, including France, Spain, UK, Netherlands and Italy have established SPV legislative frameworks and regimes; and here in Ireland we have S110. SPVs, securitisation and structured finance arrangements are a fundamental part of the international financial services infrastructure. In addition to being an important financing channel, SPVs are a ubiquitous part of the international financial services framework; investment funds, the aircraft leasing sector and insurance companies all need and use SPVs as part of their investment and risk management strategies. The absence of a solid framework for SPVs will challenge any IFS location.

So how do we rebuild? Get rid of S110. Not get rid of the provision of the tax code but get rid of the reference and association with a provision of the tax code. Tax neutrality is a key consideration but similar to other regimes, this is inherent and accepted, and is not the defining feature. We should use the current comment and profile to provide a “best in class” legal framework for SPVs. By using the existing framework and adding provisions to provide legal certainty, efficiencies and governance considerations, we should develop a unique investment vehicle, the ISPV which would be an internationally recognised investment vehicle to support high quality European securitisation and other structured finance and investment transactions to complement and support Ireland as a leading jurisdiction for IFS.
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