Section 110

Definition

Section 110 of the Taxes Consolidation Act in Ireland outlines the taxation framework for special purpose vehicles (SPVs) involved in financial transactions. 

What is Section 110?

Section 110 of the Taxes Consolidation Act provides a structured and tax-efficient framework for SPVs, supporting Ireland’s financial services sector and attracting significant international financial activity. It allows SPVs to be established for the purpose of securitisation and other structured finance activities, such as repackaging loans or pooling assets.

Under Section 110, these SPVs can deduct a broad range of expenses from their taxable income, including interest payments, swap payments, and fees related to managing the financial assets. This effectively allows these entities to achieve a neutral tax position by offsetting income with expenses, thereby making sure that only a minimal amount of profit is taxed in Ireland.

To qualify under Section 110, an entity must meet specific criteria: it must be an Irish-resident company, it must hold qualifying assets worth at least €10 million on the day it acquires the assets, and it must notify the Revenue Commissioners of its intention to be treated under Section 110 within a certain period.

However, Section 110 has faced criticism for potentially facilitating aggressive tax planning and reducing tax liabilities on substantial financial transactions.

Example of Section 110

A financial institution in Dublin sets up a special purpose vehicle (SPV) to securitise a portfolio of residential mortgages worth €50 million. Under Section 110 of the Taxes Consolidation Act, the SPV is able to deduct various expenses, including interest payments on issued bonds and fees for managing the portfolio, from its taxable income.

As a result, the SPV reports minimal taxable profit, significantly reducing its tax liability in Ireland. This tax efficiency makes the securitisation process more financially attractive and supports the institution’s goal of raising capital through the sale of mortgage-backed securities.