Written answers

Wednesday, 12 December 2018

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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80. To ask the Minister for Finance the specific type of SPV model used for the securitisation of mortgages by banks (details supplied); if the vehicle will be tax exempt; if the distributions from the vehicle will be taxed here; and if he will make a statement on the matter. [52451/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I would like to advise the Deputy that I am not in a position to comment on the activities of individual taxpayers. I can however give the following overview of Section 110 of the TCA 1997 as it relates to the securitisation of mortgages by banks .

Section 110 of the Taxes Consolidation Act 1997 sets out a regime for the taxation of special purpose companies set up to securitise assets.  The tax provisions are intended to create a tax neutral regime for bona-fide securitisation and structured finance purposes. 

The purpose of securitisation in this respect is to allow banks to free up capacity on their balance sheets to engage in lending.  The ability to securitise is seen by the European Banking authority as essential to a properly functioning banking sector, and is a key part of the EU’s capital market union action plan.

Finance Act 2012 introduced two key restrictions on the ability of a section 110 company to take a tax deduction for interest in respect of the “profit participating note” (PPN).  The first is that where the interest is paid to a connected person, the Irish 110 company cannot take a tax deduction unless the recipient is in a country with which we have a double tax agreement and is subject to tax on that interest.  The second is that a tax deduction is not available where there is a tax avoidance motive.

Additionally, further changes were made to Section 110 regime as part of the 2016 Finance Act. The purpose of the changes was to ensure that investors paid the appropriate tax on gains arising from the disposal of loans that were secured over Irish land: namely Irish mortgages. This was achieved by treating mortgages as a separate business in respect of the PPN.

Prior to the 2016 changes these profits were being removed from the Irish tax net through the use of the aforementioned PPN. The 2016 amendments restricted the ability of a qualifying company to take a tax deduction for interest on a PPN where it arose from gains on Irish mortgages.

When the 2016 amendments were introduced, an exception was included for securitisations carried out in line with the Capital Requirement Regulation of 2013 on prudential requirements for credit institutions and investment firms (CRR). CRR requires an originator to retain an economic interest of at least 5% in assets which it subsequently sells by way of a securitisation. There are two key differences between securitisations carried out in line with CRR and the transactions which gave rise to the amendments made as part of the 2016 Finance Act. 

- Securitisations are not outright sales of loans. 

- Securitisations must have tranched debt.

This exception to the general 2016 amendment is only available:

- where the securitisation is being undertaken by the original lender, or

- where the securitisation is not by the original lender, it is by a financial institution or credit institution, regulated in the EU or EEA.

In relation to the taxation of the vehicle named, as I have already stated I am not in a position to comment on individual taxpayers.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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81. To ask the Minister for Finance his views on the recent Central Bank loan-to-income and loan-to-value mortgage rules review by the Governor of the bank; and if he will make a statement on the matter. [52474/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Central Bank of Ireland has an overall and independent responsibility to promote and protect financial stability and the mortgage lending measures are an important tool available to the Bank for that purpose.  As the Deputy is aware, the Central Bank recently published its 2018 review of the residential mortgage macro prudential rules (available at this ) and the Bank indicated, following the review, that the mortgage lending limits would remain unchanged.  I note in particular the Bank's position that the mortgage measures, as part of the wider macro prudential framework, are continuing to achieve the twin objectives of contributing to overall financial stability and protecting individual borrowers.  Nevertheless, the Central Bank will continue monitor developments and it indicated that it will, if necessary at a future point, adjust its macro-prudential policy tools in order to continue to safeguard the stability of the financial system and to protect consumers from excessive debt burdens.

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