Richard Bruton (Dublin Bay North, Fine Gael)
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58. To ask the Minister for Finance the nature of activities which benefit from section 110 benefits; if the benefits of this regime was recently reviewed from a national perspective; and if he will make a statement on the matter. [7092/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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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 section 110 regime enables noteholders to invest through one structured vehicle, without giving rise to an additional layer of tax as compared to a direct investment in the underlying assets.

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. It is accepted that having the option for more diversified sources of financing is good for investment and business. It is also important for financial stability in the economy, as the ability to securitise loan books plays an important role in allowing banks to meet their capital requirement obligations and to continue lending to businesses and individuals.

To come within the section 110 regime, a company must be a “qualifying company” and fulfil a number of conditions, including in relation to the type of assets that the company can hold and in turn the nature of activities that may be undertaken by the company. To be a qualifying company, section 110 TCA 1997 requires (among other things) that:

(1) The company is tax resident in Ireland and carries on the business of holding or managing "qualifying assets". Generally speaking, qualifying assets are assets in respect of which securitisation transactions are undertaken. This includes a broad range of financial and other assets including shares, bonds, derivatives, loans, deposits, commodities, plant and machinery and invoices and other types of receivable.

(2) The value of qualifying assets is at least €10 million at the time they were acquired by the section 110 company.

(3) Apart from the holding or managing of the qualifying assets, the company is not carrying on any other activities.

Department of Finance officials, together with officials in Revenue, monitor the sector and the operation of section 110 on an ongoing basis, with a view to taking action should it be deemed necessary.

For example, in 2019 Department officials prepared a report on Real Estate Investment Trusts, Irish Real Estate Funds and section 110 companies as they invest in the Irish property market. This report was presented to the Tax Strategy Group in July 2019 and informed the amendments to the section 110 regime introduced in Finance Act 2019. These amendments strengthened the significant restrictions to the deductions which a section 110 company can claim for payment of profit participating notes to a specified person. The amendments also placed the section’s main purpose test on an objective basis, which enables Revenue to more effectively challenge abuse of the legislation.