Pearse Doherty (Donegal, Sinn Fein)
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76. To ask the Minister for Finance further to the recent change in the Finance Bill to section 110, concerning the carve out for a section 110 company that is involved in the loan origination business, if an Irish non-bank lender operating an origination platform for an investment bank offering finance to the Irish commercial property market would be able to operate in a tax neutral manner as a section 110 company; and if he will make a statement on the matter. [39325/16]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by Revenue that the income of a loan origination business should comprise interest received on loans originated, with the associated expenses being the normal expenses of carrying on such a business plus any interest paid on the funds borrowed for use in the loan origination business.

If the loan origination company is a qualifying company (within the meaning of section 110 TCA 1997) then it would be able to operate in a direct tax neutral manner in Ireland.  There are a number of non-bank lenders currently active in the Irish market. These lenders are seen as an important alternative source of credit to Irish businesses which is why I provided that they would not be impacted by the introduction of the new subsection (5A) to section 110 Taxes Consolidation Act 1997, which is currently being inserted by Finance Bill 2016. 

However it is also possible for an Irish resident company carrying on a loan origination business to achieve near tax neutrality under the normal corporation tax rules.  Equally, if the investment bank that was based in a country with which we have a double tax agreement (and which taxes interest received from non-residents), lent directly to its Irish customers, then no Irish tax would arise on those profits.  For a non-resident lender to achieve Irish tax neutrality there is an administration burden placed on the Irish borrowers.

The main benefits of using a section 110 company are therefore the certainty which the lenders have in relation to the tax treatment available; in addition Irish borrowers would experience an increased administrative burden if a non-resident lender is used rather than a section 110 company.

There is no loss to the Exchequer from allowing section 110 companies carry out loan originations in a tax neutral manner.