TAX
A Section 110 company can take a deduction for interest on profit participating notes ("PPNs") provided it satisfies 4 rules:
Section 110 Rules – a deduction should be available where:
- PPN is held by a resident of an EU/Treaty country and that noteholder is subject to tax; or
- PPN is listed and noteholder is not a "specified person". A "specified person" includes a person (i) controlling the Section 110 company, including by holding 20%+ PPNs and having "significant influence"; or (ii) providing 75% of the assets of the Section 110 company. A person will be regarded as having "significant influence" if it has the ability to participate in the financial and operating decisions of the Section 110 company (eg. where the PPN holder is the manager or an entity related to the manager or appoints directors to the board, etc).
Anti-hybrid rules – if the PPN holder treats the PPN as equity or the return on it as a distribution, a deduction will only be available where the PPN holder is not an "associated enterprise" of the Section 110 company (eg, it does not consolidate the Section 110 company for financial accounting purposes and does not have board representation)
Interest limitation rules – A deduction should be available provided the income received by the Section 110 company is interest or "interest equivalent" or the Section 110 company is a "single company group" (ie. not consolidated with any party for financial accounting and has no debt issued to associated enterprises)
Irish land assets – additional requirements apply where the Section 110 company holds assets deriving their value from Irish land.
Withholding tax – wide of range of exemptions available
Pillar 2
This should not be a material issue provided the Section 110 company is not consolidated with any person and is not expected to have annual turnover in excess of €750m annual turnover.
USES
- Credit/Loan Origination
- NPL Acquisitions
- Music/Film/Pharma Royalty Receivables
- Aviation
- Private Equity
- Intra-Group Funding
NOTES
- Section 110 companies are not regulated by CBI
- Can only hold financial assets, commodities and plant and machinery (for leasing)
- All transactions must be at arm's length
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
