Ireland is a leading jurisdiction for the set up of SPC’s which are used in capital markets and special financing projects to provide a special company specific for that project and limit its exposure to non-related credit risks. This ensures that the investors or noteholders in the SPC are only exposed to the assets and liabilities of that specific SPC that they have invested in.
The type of company mostly used for Section 110 SPC’s in Ireland is a private company set up as a Designated Activity Company (“DAC”). The DAC is used as it can limit the activities of the company to specific activities such as investing and holding only certain types of assets which protects the investors interest. A DAC type of company must be used if it is issuing debt securities to the public or is going to have the debt listed. These entities can also elect to be treated as flow through or corporate entities for US federal income tax purposes. DAC’s must also have two directors compared with only 1 director requirement for a Limited company (“LTD”). Amstrow Corporate Services (Ireland) limited through our TCSP authorisation can assist with incorporating the DAC entity with 3-5 working days, providing Irish resident Directors, a registered office and company secretary services to set up the SPC. Amstrow can also provide a full suite of ongoing additional services to the management the SPC during the life of the structure.
For Section 110 SPC’s investing in once off projects we normally see these being set up as Orphan SPC’s which means the shares are held by a share trustee who holds the shares on trust for charitable purposes. Amstrow Shareholder Services Limited can act as shareholder for the Section 110 SPC as the legal owner of the shares while the beneficial owner would be Irish registered charities as set out in the trust deed.
Ireland does not have any thin capitalisation rules so the SPC can be set up with 1 share of €1 euro. The SPC is not a regulated entity but S110 SPC’s are required to register and to file a quarterly report to the Central Bank of Ireland under section 18 of the Central Bank Act 1971 which Amstrow can assist with.
Most SPC’s in Ireland are set up from a tax perspective under Section 110 of the Taxes Consolidation Act 1997 (“Section 110”) which is used in structured finance transactions as it allows the SPC to hold a wide range of financial assets including the leasing of Aviation, Shipping and Green energy assets in a tax neutral manner.
To qualify as a Section 110 SPC there are several conditions to be met
- The SPC must hold or manage a qualifying asset which is defined as a financial asset or any interest in a financial asset, commodities or plant and machinery.
- The Transaction size of the assets held by the SPC on “day one” must be greater than €10 million on the date they are first acquired.
- The SPC is registered with the Irish revenue authorities as a Section 110 entity
- The Section 110 SPC Is tax resident in Ireland
The advantage of using a Section 110 SPC is that is allows for profit extraction in a tax efficient manner and minimises tax leakage for investors. The main difference compared to a traditional operating company is how a return to its investors is categorised. A traditional company will pay a dividend to investors which is distributed from profits after taxation but the Section 110 SPC allows the cost of funding paid to investors as a tax deductible expenditure in its accounts. If the SPC is using an funding instrument such as a Profit Participating Loan Note (“PPN”) this will ensure that all profits above a small defined corporate benefit are always distributed to investors which will result in a tax neutral SPC making a small taxable profit equal to the defined corporate benefit.
Tax advice on the structure should be taken before selecting the Section 110 SPC as the structure of choice for your investment structure as there are certain anti- avoidance provisions that can limit the deductibility of the interest payments as an allowable expense if the interest received from the SPC is not subject to tax under the law of the EU/treaty partner country of the investor.
This restriction does not apply to payments of interest on Quoted Eurobonds or Commercial Paper where certain conditions are met. We see several SPC’s listing there PPN’s on the Irish or Vienna stock exchange to avail of this “quoted Eurobond” exemption. In 2020 the new EU Anti-Tax Avoidance Directive measures implemented anti-hybrid rules which limit tax advantages being exploited by using multi-jurisdictional structures to take advantage of different tax treatment in each country. Nearly all transactions involving Section 110 SPC’s will be unaffected by these new rules due to the way they are structured.
If you would like Amstrow to assist you with setting up and managing your Section 110 SPC or to receive a quote please email firstname.lastname@example.org or call +353 1 5252564 to discuss your requirements.