Finance Act 2016

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Amendment of section 110 of Principal Act (securitisation)

22. Section 110 of the Principal Act is amended—

(a) in subsection (1) in the definition of “qualifying company” by—

(i) substituting the following for paragraph (f):

“(f) which has notified in writing the authorised officer in a form prescribed by the Revenue Commissioners that it is or intends to be a company to which paragraphs (a) to (e) apply and has supplied such other particulars relating to the company as may be specified on the prescribed form including details concerning the—

(i) type of transaction,

(ii) assets acquired,

(iii) originator,

(iv) intra-group transactions, and

(v) connected parties,

not later than 8 weeks from—

(I) 1 January 2017 where the day referred to in paragraph (e) predates 1 January 2017 and the company has not yet made the notification in writing to the authorised officer in the form prescribed by the Revenue Commissioners as required to be made by the specified return date (within the meaning of section 959A) for the first accounting period in relation to which it is such a company, or

(II) the day referred to in paragraph (e),

and where information required is not available at the time the written notification is provided to the authorised officer, that information should be provided without undue delay upon becoming available,”,

and

(ii) substituting “(4A), (5) and (5A)” for “(4A) and (5)”,

(b) in subsection (4) by substituting “(4A), (5) and (5A)” for “(4A) and (5)”, and

(c) by inserting the following after subsection (5):

“(5A) (a) In this subsection—

‘arrangement’ includes any agreement, understanding, scheme, transaction or series of transactions;

‘CLO transaction’ means a securitisation transaction entered into by a qualifying company which is carried out in conformity with—

(a) a prospectus, within the meaning of Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003⁵ ,

(b) listing particulars, where any securities issued by the qualifying company are listed on an exchange, other than the main exchange, of the State or a relevant Member State, or

(c) where the securities issued by the qualifying company will not be listed on an exchange in the State or a relevant Member State, legally binding documents,

that—

(i) may provide for a warehousing period, which for the purposes of this subsection means a period not exceeding 3 years during which time the qualifying company is preparing to issue securities, and

(ii) provide for investment eligibility criteria that govern the type and quality of assets to be acquired,

and where, based on the documents referred to in paragraphs (a) to (c) and the activities of the qualifying company, it would not be reasonable to consider that the main purpose, or one of the main purposes, of the qualifying company was to acquire specified mortgages;

‘CMBS/RMBS transaction’ means a securitisation transaction entered into by the qualifying company where—

(a) the originator (within the meaning of paragraph (a) of the definition of ‘originator’ in Article 4 of the CRR) retains a net economic interest in the credit risk of the securitisation position in accordance with Article 405 of the CRR, or

(b) an originator (within the meaning of paragraph (b) of the definition of ‘originator’ in Article 4 of the CRR) retains a net economic interest in the credit risk of the securitisation position in accordance with Article 405 of the CRR and is a financial institution (within the meaning of the CRR) or credit institution (within the meaning of the CRR) regulated by a competent authority in a relevant Member State or the State or is authorised by a third country authority, recognised by the European Commission as having supervisory and regulatory arrangements at least equivalent to those applied in a relevant Member State or the State, to carry out similar activities;

‘CRR’ means Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013⁶ ;

‘EEA state’ means a state, not being a Member State or the State, which is a contracting party to the Agreement on the European Economic Area signed at Oporto on 2 May 1992 as adjusted by the Protocol signed at Brussels on 17 March 1993;

‘loan origination business’ means the making of an advance, other than a specified security to a borrower that has a specified property business—

(a) in respect of which the qualifying company is the original creditor, or

(b) that is acquired by the qualifying company on or about the date on which it was advanced,

provided that such advance is not made as a result of a novation or refinancing of a specified mortgage, other than for bona fide commercial reasons and did not form part of an arrangement the main purpose, or one of the main purposes, of which was to avoid the application of this subsection;

‘relevant Member State’ means a Member State, other than the State, or not being such a Member State, an EEA state;

‘securitisation’ means a securitisation within the meaning of the CRR;

‘specified mortgage’ means—

(a) a loan which is secured on, and which derives its value from, or the greater part of its value from, directly or indirectly, land in the State,

(b) a specified agreement which derives all of its value, or the greater part of its value, directly or indirectly, from land in the State or a loan to which paragraph (a) applies, other than a loan or a specified agreement which derives its value or the greater part of its value from a CLO transaction, a CMBS/RMBS transaction, a loan origination business or a sub-participation transaction,

(c) the portion of a specified security treated as attributable to the specified property business in accordance with paragraph (c)(ii), or

(d) units in an IREF (within the meaning of Chapter 1B of Part 27);

‘specified property business’, in relation to a qualifying company, means the whole, or part, of the business of the qualifying company that involves the holding, managing or both the holding and managing of specified mortgages, and shall not include—

(a) a CLO transaction,

(b) a CMBS/RMBS transaction,

(c) a loan origination business,

(d) a sub-participation transaction, or

(e) activities which are preparatory to the transactions or business mentioned in paragraphs (a) to (d),

where the qualifying company, in respect of paragraphs (a) or (b), apart from activities incidental or preparatory to that transaction or business, carries on no other activities;

‘specified security’ means a security where subsection (4) would, or would but for this subsection, apply to any interest or other distribution payable thereon;

‘sub-participation transaction’ means a transaction which involves the acquisition of an economic interest in a loan by the qualifying company in the ordinary course of a bona fide syndication of such loan to one or more lenders where the originator of the loan—

(a) is a financial institution (within the meaning of CRR) or credit institution (within the meaning of CRR)—

(i) regulated by a competent authority in a relevant Member State or the State, or

(ii) authorised by a third country authority, recognised by the European Commission as having supervisory and regulatory arrangements at least equivalent to those applied in a relevant Member State or the State, to carry out similar activities,

(b) remains a lender of record, and

(c) retains a material net economic interest in the credit risk of the loan of not less than 5 per cent.

(b) (i) In calculating the portion of the value of a loan or specified agreement attributable directly or indirectly to land in the State for the purposes of paragraph (a), account shall not be taken of any arrangement that—

(I) involves a transfer of assets, other than a specified mortgage, from a person connected with the qualifying company, and

(II) the main purpose, or one of the main purposes, of which is the avoidance of tax.

(ii) In calculating the portion of the value of each loan or specified agreement attributable directly or indirectly to land in the State for the purposes of paragraph (a), regard shall be had to the gross value of the assets from which the specified mortgage derives its value of which the land in the State is part.

(c) (i) Notwithstanding the generality of section 70(1), the profits arising to a qualifying company from its specified property business shall be treated for the purposes of the Tax Acts, other than any provision relating to the commencement or cessation of a trade, as a separate business which is distinct from any other business or part of a business carried on by the qualifying company.

(ii) For the purposes of treating the specified property business of a qualifying company as a separate business, in accordance with subparagraph (i), any necessary apportionment shall be made so that expenses laid out or expended in earning the profits of that separate business shall be attributed to the separate business on a just and reasonable basis and the amount of the expenses so apportioned shall be an amount which would be attributed to a distinct and separate company, engaged in the same activities, if it were independent of, and dealing at arm’s length with, the qualifying company.

(d) Subject to subsections (4A) and (5), subsection (4) shall only apply to the calculation of the profits of a specified property business of a qualifying company in respect of so much of any interest or other distribution payable in respect of a specified security—

(i) as is paid by a qualifying company to—

(I) a person—

(A) being an individual who is resident in the State and within the charge to income tax, or

(B) in any other case, who is or will be within the charge to corporation tax,

in the State in respect of that interest or other distribution,

(II) a fund approved under section 774, 784(4) or 785(5), a PRSA within the meaning of section 787A, a person exempt from income tax under section 790B or a fund authorised by a Member State or an EEA state and subject to supervisory and regulatory arrangements at least equivalent to the supervisory and regulatory arrangements applied to those funds in the State,

(III) a person (referred to in this clause as the ‘non-resident person’) who—

(A) being an individual is a national of a relevant Member State, or

(B) being a company, is formed under the laws of, and is registered in, a relevant Member State,

where under the laws of any relevant Member State the interest or other distribution is subject, without any reduction computed by reference to the amount of such interest or other distribution, in respect of any interest or other distribution which is to any extent dependent on the interest or other distribution payable on the specified security, or in respect of any imputed, deemed or notional expenses calculated by reference to an amount of debt, equity or hybrid financing, including instruments which are neither debt nor equity financing to a tax which generally applies to income or profits (other than gains), received in that state, by persons, from sources outside that state where it would be reasonable to consider that—

(AA) the holding of the specified security by the non-resident person does not form part of any arrangement or scheme the main purpose, or one of the main purposes, of which is the avoidance of a liability to tax, and

(AB) where the non-resident person is a company, genuine economic activities, relevant to the holding of the specified security, are carried on by the non-resident person in any relevant Member State,

(IV) an IREF (within the meaning of Chapter 1B of Part 27), or

(V) an investment undertaking, other than an investment undertaking which would be a personal portfolio IREF (within the meaning of section 739M) if all references in that section to IREFs were references to investment undertakings, and references to IREF assets and IREF business were references to the assets and activities of that investment undertaking,

(ii) as on the creation of the specified security, would represent no more than a reasonable commercial return which is not dependent on the results of the qualifying company for the use of that principal, or

(iii) from which tax has been properly deducted at the standard rate in force at the time of the payment in accordance with section 246(2) and such tax which has been properly deducted is not refundable.

(e) (i) Subject to subparagraph (ii), this subsection shall apply to accounting periods commencing on or after 6 September 2016.

(ii) Where the accounting period of a company begins before 6 September 2016 and ends after that date, for the purposes of this subsection, that accounting period shall be divided into 2 parts, one beginning on the date on which the accounting period begins and ending on 5 September 2016 and the other beginning on 6 September 2016 and ending on the date on which the accounting period ends.”.

⁵OJ No. L354, 31.12.2003, p.64

⁶OJ No. L176, 27.6.2013, p.1