Michael McGrath (Cork South Central, Fianna Fail)
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154. To ask the Minister for Finance further to the changes to the section 110 tax structure introduced in the Finance Act 2016, if property funds that purchase residential and commercial loans from NAMA and banks operating here will no longer be able to avail of this structure in respect of the profits earned on the holding of such loans; and if he will make a statement on the matter. [37955/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 22 of the Finance Act 2016 made an amendment to section 110 of the Taxes Consolidation Act 1997 to address the concern that some section 110 companies were being used to minimise the Irish tax exposure on Irish property transactions.  The core effect of the amendment is to remove the possibility for section 110 companies to use what are known as 'profit participating notes' to sweep Irish property or distressed debt profits out of the company in a way that ensures little or no Irish tax liability arises.  

This is to be achieved by, for the purposes of section 110, treating the holding of Irish mortgages as a separate business which will not be entitled to a tax deduction for the coupon on the profit participating note.  Therefore, while section 110 companies may still purchase loans, the profits made by the section 110 company on their Irish mortgages will be taxable.  

By treating the holding of the Irish mortgages as a separate business, this will ensure the protection of the Irish tax base regarding Irish property transactions, while simultaneously maintaining the section 110 regime, and all the benefits associated with it, for the wider use in de-leveraging by financial institutions.  

The amendment does not permit the companies to ‘mark to market’ and applies to profits arising on or after 6 September 2016.  Ireland, in both its domestic legislation and its double tax treaties, maintains the right to tax land in the State.  Loans which derive their value from land in the State are an interest in land, and so we also maintain the right to tax profits associated with those loans. 

Michael McGrath (Cork South Central, Fianna Fail)
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155. To ask the Minister for Finance further to the changes to the section 110 tax structure introduced in the Finance Act 2016, if he will state the definition of a bona fide use of the section 110 tax structure in keeping with the original intention behind the establishment of the structure for securitisation purposes; and if he will make a statement on the matter. [37956/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 110 is intended to create a tax neutral regime for bona fide securitisation and structured finance purposes.  It has been part of our corporation tax code since 1991, with significant amendments in 2003.  Securitisation involves the creation of tradeable securities out of an income stream or projected future income stream generated by financial assets.  The transaction can involve the use of a special purpose securitisation vehicle to facilitate the transaction and issue the securities.

Securitisation allows banks to raise capital and to share risk, and by providing a repackaging and resale market for corporate debt, it lowers the cost of debt financing.  

The section 110 regime was designed to improve Ireland’s offering as a location for the conduct of financial services.  It has achieved that broad goal and the financial services industry now makes use of these vehicles as a support to financial intermediation.  Such financing is useful for the productive economy as it can underpin the supply of finance to industries and companies in Ireland, Europe and further afield.  

Ireland is not unique in having a specific regime for securitisations. The importance of securitisation has been recognised by the European Commission through their work on the Capital Markets Union.  This is a European Commission initiative to mobilise capital in Europe.  A main objective of which is to build a sustainable securitisation regime across the European Union.  The Capital Markets Union specifically states how alternative sources of finance are more widely used in other parts of the world, and the widely held view is that should play a bigger role in providing financing to companies that struggle to get funding, especially SMEs and start-ups.