Ireland: The SPV Jurisdiction Of Choice For Structured Finance Transactions

Introduction

In recent years Ireland has become the jurisdiction of choice for the establishment of special purpose vehicles (SPVs) for ABS, CAT bond, CDO, CLO, CMBS, commercial paper, distressed debt, LPN, MTN, repackaging, RMBS, securitisation, US life settlements, and other structured finance transactions. As the market has become more sophisticated, Ireland as a jurisdiction has constantly responded, in terms of its legal and tax framework, in order to continue to position itself as the location of choice for SPVs. Most recently, Ireland extended the category of assets that may be held by SPVs to include commodities and plant and machinery, such as aircraft and other chattels. Irish SPVs are also used in conjunction with Irish regulated funds in dual fund/SPV structures. A summary of the benefits of using an Irish SPV are set out below.

Onshore status

Ireland is a member of the European Union (EU) and also of the Organisation for Economic Co-operation and Development (OECD). In the current environment many originators and arrangers prefer not to use offshore entities in their transaction structure. In fact, many investors in structured finance transactions will only invest in notes issued by SPVs located in EU or OECD member countries.

Taxation

Ireland is not a tax haven. It is an onshore EU tax jurisdiction and in coming to Ireland parties must deal with the Irish tax position and must ensure, through careful planning and advice, that the tax analysis required is achieved. It is critical in any structured finance transaction to minimise any liability to taxation arising to either the SPV or the noteholders.

SPV taxation

Irish tax legislation (Section 110 of the Taxes Consolidation Act 1997) provides for special treatment in relation to qualifying SPVs. A qualifying SPV must be resident in Ireland for tax purposes. It must acquire financial assets or enter into swaps or other legally enforceable financial arrangements (as per the list below) with a market value of at least EUR 10,000,000, although this financial requirement only applies to the first transaction entered into by the SPV.

The SPV may acquire, hold, manage or enter into any of the following financial arrangements (either directly or indirectly, for example, through a partnership):  shares, bonds and other securities;

  • futures, options, swaps, derivatives and similar instruments;
  • invoices and all types of receivables;
  • obligations evidencing debt (including loans and deposits);
  • leases and loan and lease portfolios;
  • hire purchase contracts;
  • acceptance credits and all other documents of title relating to the movement of goods;
  • bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments;
  • carbon offsets;
  • contracts for insurance and contracts for reinsurance;
  • commodities which are dealt in on a recognised commodity exchange; and
  • plant and machinery.

Profits arising from the activities of a qualifying SPV are chargeable to corporation tax as if the SPV was a trading company. This is very important as it ensures that a tax deduction is available in respect of any interest expense incurred by the SPV. Through proper and careful planning the position can be achieved such that the SPV earns a minimal profit (there is no specified minimum amount required by law) subject to the corporation tax rate of 25 per cent.

A combination of the treatment of the SPVs as similar to trading companies for the purpose of calculating their tax liability and the availability of an interest deduction for payments of interest on notes (including profit participating notes, subject to certain conditions being satisfied) ensures that the SPV is both profit neutral and tax neutral. It is also important to note that although the SPV must notify the Irish Revenue Commissioners (Revenue) of its existence, no special rulings or authorisations are required in Ireland in order for the SPV to achieve this tax neutral status.

Taxation of noteholders

Income tax

Where interest is paid by a qualifying SPV to any person who is not resident in Ireland and who is regarded as being a resident of a relevant territory, then there is a domestic exemption from Irish income tax on the receipt of such interest. A relevant territory for this purpose is a Member State of the EU (other than Ireland) or not being such a Member State a territory with which Ireland has entered into a double tax treaty that has the force of law or, on completion of the necessary procedures, will have the force of law and such double tax treaty contains an article dealing with interest or income from debt claims.

Ireland currently is a party to 68 double tax treaties and Revenue are very active in increasing the number of treaties to which Ireland is a party. Ireland has currently entered into a double tax treaty with each of Albania, Armenia, Australia, Austria, Bahrain, Belarus, Belgium, Bosnia & Herzegovina, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Egypt, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Israel, Italy, Japan, Korea (Rep. of), Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Moldova, Montenegro, Morocco, the Netherlands, New Zealand, Norway, Pakistan, Panama, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, the Republic of Turkey, United Arab Emirates, United Kingdom, USA, Uzbekistan, Vietnam and Zambia.

However, if this domestic exemption does not apply due to the residence of the noteholder, there is a long standing unpublished practice in Ireland whereby no action will be taken to pursue any liability to such Irish tax in respect of persons who are regarded as not being resident in Ireland provided such persons are not otherwise subject to tax in Ireland or do not seek to obtain repayment of tax in respect of other taxed income from Irish sources.

Withholding tax

In general, withholding tax (currently at the rate of 20 per cent.) must be deducted from interest payments made by an Irish company. However, two major exemptions from the charge to Irish interest withholding tax are provided under domestic legislation, the "quoted Eurobond" exemption and the "qualifying person" exemption.

A quoted Eurobond is defined as a security which is issued by a company, is quoted on a recognised stock exchange and carries a right to interest. There is no obligation to withhold tax on payments of interest on quoted Eurobonds where the person by or through whom the payment is made is not in Ireland or, if the payment is made by or through a person in Ireland, the quoted Eurobond is held in a recognised clearing system or the person who is the beneficial owner of the quoted Eurobond provides a declaration that they are not resident in Ireland.

In addition, there is no obligation to withhold tax in respect of interest payments made by a qualifying SPV to any person who is not resident in Ireland and who is regarded as being a resident of a relevant territory (see above for details). In order to rely on this second exemption from withholding tax it is necessary to be able to identify the holders of the notes issued by the SPV. Such identification can be managed by issuing definitive registered notes with certain transfer restrictions.

Other exemptions from withholding tax are also available, including an exemption for specific types of notes with a maturity of less than two years known as the "wholesale debt instrument" exemption. In general, withholding tax does not apply to swap payments.

Other taxes – VAT and stamp duty

Other taxes of relevance to structured finance transactions in Ireland include value added tax and stamp duty.

In general, the activities of a qualifying SPV are exempt activities for VAT purposes and therefore there is no obligation on the SPV to charge VAT in respect of its activities. The SPV is typically not in a position to obtain a repayment of any VAT incurred by it in respect of services received. No charge to Irish VAT arises in respect of corporate administration services supplied to a qualifying SPV. Further, it is notable in relation to managed transactions that no charge to Irish VAT arises in respect of collateral management services supplied to a qualifying SPV.

In relation to stamp duty, as long as the SPV remains a qualifying company within the meaning of the relevant legislation, no Irish stamp duty will be payable on either the issue or transfer of the notes, provided that the finance raised by the issue of the notes is used in the course of the business of the SPV. There is no capital duty in Ireland.

Double tax treaties

As discussed above Ireland has entered into 68 double tax treaties with other countries and the terms of the appropriate treaty can ensure that the income in respect of the underlying assets acquired by the SPV can be paid to it without any withholding or other taxes. This can provide a significant advantage for Ireland over the use of tax haven jurisdictions where withholding tax can otherwise result in significant tax leakage in the transaction. The number of tax treaties to which Ireland is a party is increasing every year. New agreements with Azerbaijan, Thailand, Tunisia and Ukraine are in the course of negotiation or approval.

Accounting treatment

In general, the taxable profits of a qualifying SPV will follow the accounting treatment in accordance with Irish GAAP rules as they existed as at 31 December 2004, unless the SPV elects otherwise.

Offering of securities

Ireland implemented Directive 2003/71/EC of 4 November 2003 (the Prospectus Directive) on 1 July 2005 pursuant to the Prospectus (Directive 2003/71/EC) Regulations 2005 (as amended by the Prospectus (Directive 2003/71/EC) Amendment Regulations 2012) (the Prospectus Regulations). Pursuant to the Prospectus Regulations an Irish SPV will be obliged to publish a prospectus if it wishes to offer its securities to the public in Ireland, subject to certain exceptions including for offers made to qualified investors (as defined in the Prospectus Regulations), private placements made to fewer than 150 persons (other than qualified investors) and offers with a minimum of total consideration per investor or specified denomination per unit of at least EUR 100,000. Whether nor not the securities are publicly offered, the Prospectus Regulations also require a prospectus to be published if the securities are listed on the Main Securities Market of the Irish Stock Exchange (ISE).

Prior to publication of a prospectus, the Irish SPV must apply to the Central Bank of Ireland (the Central Bank) for approval of the prospectus. Following the approval of the prospectus by the Central Bank it must be published by the Irish SPV and this can be achieved by publication of the prospectus on the Central Bank's website, although other options are available. Once the prospectus has been approved by the Central Bank it can avail of the "passport" provided to issuers by the Prospectus Directive which means that it must be accepted throughout the EU for public offers and/or admission to trading on regulated markets.

Private limited company or PLC?

Historically a public limited company (PLC) had to be incorporated for the majority of structured finance transactions where an Irish SPV issued securities, particularly where such securities were offered to anyone other than a select number of sophisticated investors. Following the enactment of the Irish Investment Funds, Companies and Miscellaneous Provisions Act 2006 which, inter alia, amended the Irish Companies Acts, a private limited company can now be used for most transactions.

The use of a private limited company rather than a PLC has two principal advantages:

(i) a private company can be incorporated with a minimum share capital of EUR 1, whereas a PLC must have a minimum share capital of EUR 38,100. The share capital of a PLC may however be used to defray costs incurred by the SPV in entering into the transaction; and

(ii) a private company can be incorporated in 5 working days (or less) while it usually takes two weeks to have a PLC fully operational, as prior to entering into any documentation or transacting any business a PLC must also hold a certificate of a public company entitled to do business.

A private limited company can now be used where:

  • the offering of securities is made only to "qualified investors";
  • the offer is made to less than 100 persons (not including qualified investors); or
  • the minimum subscription amounts or the minimum denomination of the securities is not less than EUR 50,000.

If the offering of securities does not fall within one of the above three categories it will be necessary to incorporate a PLC, particularly for transactions that involve large scale retail offers with low minimum denominations.

Listing

The ISE has extensive experience in the listing of specialist debt securities such as those issued by SPVs and provides an efficient, effective and timely listing service. The ISE has a turnaround time of maximum of three working days on the initial draft followed by a two working day turnaround on subsequent drafts. The ISE is now recognised as having a leading position in this market. Debt securities listed on a "recognised stock exchange" (such as the Main Securities Market or the Global Exchange Market (which is not a "regulated market" for the purposes of the Markets in Financial Instruments Directive) of the ISE) can avail of the quoted Eurobond exemption from withholding tax (see above for more detail).

Conclusion

Ireland has a highly regarded regulatory regime and has consistently introduced and refined its legislation dealing with structured finance transactions. Ireland is also an onshore jurisdiction that is an EU Member State and a member of the OECD. Ireland, like the US and the UK, is a common law jurisdiction. Ireland has a large double taxation treaty network and has a domestic infrastructure capable of implementing the most difficult structured finance deals (such as experienced corporate administrators, lawyers, auditors etc) in a cost effective manner. All of these factors now combine to make Ireland the jurisdiction of choice in which to locate structured finance SPVs.

Our Structured Finance and Derivatives Group

Matheson Ormsby Prentice is Ireland's largest law firm with over 600 people. We focus on advising international companies and financial institutions doing business in and through Ireland. Our clients include many Fortune 500, FT Global 500 and FT Euro 500 companies. We also represent 27 of the world's 50 largest banks. The firm's headquarters is in Dublin, with offices in London, New York and Palo Alto, Silicon Valley.

Our Structured Finance and Derivatives Group has enjoyed a pre-eminent reputation in arranging structured finance transactions ever since our involvement in drafting the original securitisation legislation enacted in Ireland and subsequently advising in relation to the first securitisation of international assets through Ireland.

We advise international financial institutions, asset management firms, private equity and hedge funds, and corporations involved in arranging and executing structured finance transactions both in and through Ireland. The nature of such transactions usually involves advising on each of the taxation, banking and financial services and capital markets elements of cross-border structures and results in our working closely with arrangers, originators and law firms in jurisdictions throughout the world. As we are the only Irish law firm with a structured finance presence on the ground in New York and Palo Alto, our US based clients have consistently found this to be an invaluable resource when executing structured finance transactions.

Since the publication of league tables by international financial publisher, Thomson Reuters in 2005, we are consistently ranked as the leading Irish law firm for international bond issues. League tables published for the first six months of 2012 show that Matheson Ormsby Prentice advised on more international bond issuance transactions than any other Irish law firm. Matheson Ormsby Prentice was ranked 5th in the world (up from 9th for the same period in 2011) by total number of international bond deals. We are also consistently ranked as a tier one capital markets law firm by a number of international legal journals, including Legal 500 and Chambers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Maples Group
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Maples Group
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions