The Finance Bill 2011, which was published on 21 January, contains a limited number of provisions of interest to international business. The most significant changes relate to the taxation of securitisation/finance companies.
Section 110 of the Taxes Consolidation Act (S110) provides a beneficial tax treatment for Irish resident companies engaged in the business of holding and managing "financial assets" and, in particular, the ability to claim a tax deduction for interest on profit participating securities (PPSs).
The Finance Bill proposes extending the S110 regime to:
- plant and machinery (which would include aircraft), and
- carbon credits.
The extension to plant and machinery will be widely welcomed by the aircraft industry in particular and the inclusion of commodities in the category of permissible assets will greatly facilitate the issuing of commodity linked securities, especially gold backed notes.
The Finance Bill 2011 proposes to introduce some limited restrictions on the deductibility of interest on PPSs used in a couple of specific structures. These proposed changes should, in general, have no impact on existing S110 companies or on the vast majority of new S110 structures.
A broadly similar rule on deductibility is proposed for payments made under total return swaps (TRSs) where the payment would not have been deductible had it been interest. The principal reason for this proposed amendment is to deal with concerns of the Revenue Authorities about the use of total return swaps by section 110 companies as a means of avoiding Irish withholding tax.
Under the "grandfathering" provisions contained in the draft legislation, it is proposed that none of the above restrictions will apply to interest paid on securities (i) issued, or deemed to have been issued, before 21 January 2011 or (ii) which the S110 company was bound to issue under a binding written agreement made before 21 January 2011. In relation to TRS arrangements, the provisions do not apply in respect of payments made pursuant to binding written agreements entered into on or before 21 January 2011.