There have been proposals for the development of a new dedicated Irish Special Purpose Entity (SPE) legal framework to support securitisation and structured finance transactions (see Finance Dublin February 2024) to sit alongside the tried and tested Section 110 company option for the activity. Looking at Ireland’s regime for securitisation how could it be enhanced from a taxation perspective, especially in light of international tax reforms such as BEPS?
Tatheer Fatma, Manager, Financial Services Tax: BEPS Pillar II, a new age in the world’s tax landscape, is not only a reform to introduce global minimum tax rules in the Irish tax landscape, but is also a co-ordinated global response to difficulties caused by increasing digitalisation of the economy, which makes it difficult for tax authorities to tackle pitfalls in current tax legislation.
Although Pillar II affects all multinational groups with annual consolidated revenues exceeding EUR750 million, based on financial accounts, enhancing Ireland’s regime for securitization from a taxation perspective, particularly in light of international tax reforms such as Base Erosion and Profit Shifting (BEPS), could involve several measures which will provide benefits but also solve problems that securitisation companies may face in future:
- Clarity and Transparency: Clear and transparent tax rules relevant to securitization transactions would enhance the attractiveness of Ireland as a jurisdiction, thus avoiding ambiguity and ensuring compliance with international standards.
- Tax Neutrality: Ensuring that securitization transactions are tax-neutral or tax-efficient for all parties involved can make Ireland more competitive in the world. This means structuring the tax legislation and legal framework in a way that does not create undue tax burdens or incentives that may distort the economic substance of the transactions.
- BEPS Compliance: Aligning Ireland’s tax regime for securitization with the OECD’s BEPS recommendations is crucial and this can be achieved by implementing measures to prevent the erosion of the tax base and combat tax avoidance strategies, while also ensuring that legitimate securitization activities are not impacted negatively.
- Updated Legislation: Regularly updating and modernizing legislation for securitization to reflect evolving market practices and international standards is key. This includes incorporating provisions that address the taxation of various types of securitization structures and instruments. For example any in-scope securitisation companies have their Global anti base erosion model rules (“GloBE”) profits, which are calculated using the accounting standard used in preparing the group ultimate parent’s consolidated financial statements as opposed to 2004 Irish GAAP. This would create a mismatch between Irish taxable profits prepared under the 2004 GAAP standard as per Irish legislation and GloBE profits on which a minimum tax rate of 15% should apply.
- Attractiveness for Investors: Implementing tax incentives or exemptions for investors participating in securitization transactions can attract more investment and incentives such as reduced withholding tax rates on interest payments or capital gains exemptions for certain types of investors would be helpful.
- Collaboration with other countries: Cooperating with other jurisdictions and international bodies to develop consistent tax rules for securitization can improve cross-border transactions and reduce tax-related complexities.
- Promotion of Certainty and Stability for investors: Providing certainty and stability in the tax treatment of securitization transactions through legislative and regulatory frameworks can enhance investor confidence and encourage long-term investment in the market.
Content adapted from Finance Dublin’s Irish Tax Monitor.