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Ireland is a leading jurisdiction for the establishment of
special purpose vehicles ("SPVs") for structured finance
transactions, particularly CLOs. Favourable tax laws allow the
structures to be, in most cases, tax neutral (with no annual
minimum profit or "spread" required at the SPV level) and
a "quoted eurobond" exemption, together with numerous
double taxation treaties, allows interest on securities to be paid
gross. In addition, a minimal share capital requirement of €1
in most cases, makes incorporating an Irish SPV an easy
Recent developments in the U.S. CLO market and the successful
closing of Cairn CLO III in March 2013, the first European CLO
since the financial crisis, appear to offer tentative signs of a
long-awaited revival in the CLO markets. With the prospect of more
favourable market conditions for European CLOs, and with market
expectations of other new CLO issuances to follow, there are
significant advantages in choosing to locate SPVs for CLO
transactions in Ireland.
The predominant reasons for Ireland's popularity as an SPV
location for CLO transactions are its favourable tax regime, the
fact that it is an "on-shore" jurisdiction, its developed
corporate legal system, the leading jurisdiction in Europe for
listing asset backed securities and the professional and
administration services that are available locally:
SUMMARY OF BENEFITS OF ESTABLISHING CLOs IN IRELAND
- EU jurisdiction with broad range of double tax treaties.
- Common law legal system, similar in many respects to US and
- Favourable tax status for CLO issuers which should result
- No corporate tax leakage
- No withholding tax
- Limited VAT leakage
- FATCA signatory will reduce cost
- Leading jurisdiction for listing CLOs pre and post-crisis.
- Cost efficient jurisdiction involving:
- No thin cap requirement
- No minimum profit
- Competitive service provider and audit costs
- Competitive and sophisticated legal market
Further details of the key issues are as follows:
- Like the United Kingdom and the U.S.A., Ireland is a common law
jurisdiction and its legal concepts will be recognised by most
investors, originators and advisers.
- Ireland is a member of the EU and also of the OECD. For many
originators and potential investors, this is one of the more
significant advantages of locating an SPV in Ireland. Investors in
some jurisdictions may want to purchase debt issued by EU/OECD
issuers only, and the inability to access those investors if the
SPV is located elsewhere may affect the pricing of a
- There is an ongoing international trend away from investing in
so-called tax havens. Some investors take comfort from the fact
that Ireland is not a tax haven and has a developed corporate legal
system and tax structure.
- The Irish government has put in place advantageous tax laws for
finance vehicles in Ireland. The following tax points are of
(A) SECTION 110 REGIME
- Section 110 of the Taxes Consolidation Act 1997 ("Section
110") is the cornerstone of Ireland's securitisation
regime which permits qualifying Irish resident SPVs to engage in an
extensive range of financial and leasing transactions in a tax
neutral manner. The scope of the regime is accomodative, applying
to companies involved in the holding or management of a wide
category of financial assets ("qualifying assets").
- A "qualifying asset" consists of any financial asset,
or any interest (including a partnership interest) in a financial
asset, commodities, or plant and machinery.
- "Financial assets" are defined to include:
"shares, bonds, other securities, futures, options, swaps,
derivatives and similar instruments, invoices and all types of
receivables, obligations evidencing debt (including loans and
deposits), leases and loan and lease portfolios, hire purchase
contracts, acceptance credits and all other documents of title
relating to the movement of goods, bills of exchange, commercial
paper, promissory notes and all other kinds of negotiable or
transferable instruments, carbon off sets, and contracts for
insurance and contracts for reinsurance."
- Given the extensive range of assets, most structured finance
vehicles can qualify as Section 110 companies in such a way that
the transaction should be tax neutral. As a result, Ireland is an
ideal jurisdiction for locating an on-shore, EU/ OECD issuer of a
CLO with no tax leakage.
(B) TRANSACTION SIZE
- For an SPV to qualify under Section 110, there is a minimum
"day-one" size requirement that the market value of all
qualifying assets is not less than €10 million on the date
they are first acquired, held, or legally enforceable arrangements
in respect of the assets are first entered into, by the SPV. This
is a cumulative threshold for all qualifying assets held by the SPV
and benefits multi-seller transactions where not every seller can
meet this threshold.
(C) PROFIT EXTRACTION
- Minimal tax leakage and efficient profit extraction are crucial
to any structured finance transaction. Under the Section 110 rules,
the cost of funding and other related expenditure is generally tax
deductible and is structured so that the SPV's net taxable
profit is generally maintained at a negligible level as there is no
minimum profit required for tax purposes. Section 110 in particular
relaxes the rules regarding payments of interest on securities, the
return on which depends on the results of the SPV, so that such
payments will not automatically be deemed to be distributions (and
(D) WITHHOLDING TAX
- In addition to tax neutrality at the SPV level, it is also
vital to any structure that payments to investors can be made gross
and not subject to any withholding. Ireland has a wide range of
domestic exemptions from withholding tax on interest which are
available as a matter of Irish law and are in addition to the usual
tax treaty exemptions which may be available where appropriate
applications have been made.
- The principal exemption used for a structured finance
transaction is the "quoted eurobond" exemption. This is
generally available in respect of interest paid on securities
listed on a recognised stock exchange where either: (i) the
securities are held in a recognised clearing system; (ii) payments
in respect of the securities are made through a paying agent
located outside Ireland; or (iii) where the holder is a non-Irish
resident person, the holder has made an appropriate declaration to
- Other exemptions may be available for unlisted deals.
(E) STAMP DUTY
- Stamp duty will not apply on the issue or transfer of
securities issued by a Section 110 company.
- SPVs are engaged in exempt activities, and so will generally
have limited ability to recover any VAT charged to them. Irish VAT
legislation confirms that management services (which includes
portfolio management services) supplied to an SPV falling within
Section 110, whether by an originator or otherwise, can be supplied
exempt from Irish VAT. This legislative exemption provides clarity
which is not necessarily available in other jurisdictions. Irish
VAT may however be chargeable on certain trustee and rating agency
services supplied to Irish SPVs, but proper structuring can usually
eliminate or reduce VAT costs.
(G) TAX RULINGS
- Not required. The Irish tax opinion given by Arthur Cox will
cover all relevant issues.
(H) DOUBLE TAX TREATIES
- Ireland is party to an extensive range of double tax treaties
that, depending on the particular treaty, can ensure that the SPV
receives income on its underlying assets free from withholding tax
or at a reduced rate.
(I) NO MINIMUM PROFIT
- An Irish company is not required to make an annual statutory
minimum profit for Irish tax purposes. Instead, the SPV need only
receive a nominal fee (corporate benefit payment) at the start of
- In December 2012, Ireland signed the Foreign Account Tax
Compliance Act ("FATCA") Intergovernmental Agreement
"IGA") with the US, the first leading SPV/fund domicile
to do so. Similar to the UK-US IGA, it will significantly reduce
cost and time dealing with FATCA.
ESTABLISHING AN SPV IN IRELAND
(A) CORPORATE STATUS
- A private limited company can be used if the transaction falls
within certain offer exemptions, which include the following:
- the securities are offered in minimum denominations of at least
€50,000 (or the foreign currency equivalent);
- the securities are only offered to qualified investors;
- the securities are offered to less than 100 persons (not
including qualified investors).
- Given CLOs are not targeted at retail investors, Irish private
limited companies can be used for most transactions.
- A PLC will need to be used where the transaction is outside of
these exemptions (e.g. offers of securities in low denominations
and large retail offerings).
(B) MINIMUM CAPITALISATION
- Private limited company: €1.
- PLC: the minimum capitalisation required is
(C) OWNERSHIP STRUCTURE
- Irish SPVs are normally set up with their shares held by or on
behalf of a share trustee who holds the shares on trust for
charitable purposes. As such, the arranging institution will not
have any shareholding in the SPV.
(D) TIMING FOR ESTABLISHMENT
- Private limited company: 3-5 days.
- PLC: 2-3 weeks.
(E) COSTS OF INCORPORATION
- Excluding legal fees, it costs approximately €100 to
incorporate a private limited company and €400 (including the
cost of a trading certificate) to incorporate a PLC.
(F) "THIN CAPITALISATION"
- There are no "thin capitalisation" rules for SPVs in
(G) ANNUAL FEES AND EXPENSES
- Corporate service fees are likely to be in the region of
€20,000 per annum (including directors' fees).
- Audit and tax compliance fees are generally in the region of
€14,000 per annum.
(H) LICENCES AND APPROVALS
- There is no requirement for a collateral manager to be licenced
in Ireland if it has an EU authorisation to provide collateral
management service on a cross-border basis, or in the case of
non-EU collateral managers, if its head or registered office is
outside the EU, it has no branch in Ireland from which it provides
collateral management services and only provides investment to
non-consumers in Ireland. Irish SPVs in CLO transactions should
generally be regarded as securitisation special purpose entities
for the purposes of AIFMD and exempt from its requirements.
- The annual financial statements of the SPV are required to be
- The Irish Stock Exchange (ISE) has become the largest European
exchange for the listing of asset backed debt securities such as
those issued by SPVs.
- The ISE has a particular strength in listing CLOs of both
European and U.S. originators.
- Currently, the ISE guarantees comments within three days of
receipt of the first draft of an offering circular.
- In addition, the ISE played a significant role in the drafting
of the disclosure standards under the Prospectus Directive and has
taken a very proactive role to ensure the Prospectus Directive is
implemented smoothly in Ireland.
- The Global Exchange Market (GEM) of the Irish Stock Exchange
has also become an increasingly popular market for issuers seeking
an EU-based listing. GEM is an exchange-regulated market and does
not fall within the scope of the EU regulated markets as defined in
MiFID and therefore the requirements of the Prospectus Directive
and the Transparency Directive do not apply.
- Through Arthur Cox Listing Services Limited, we advise on the
listing of a wide variety of asset-backed debt and fund
transactions. Details of our experience and services are available
By virtue of its favourable tax and corporate laws and its
status as an EU/ OECD member, Ireland is the ideal location for the
establishment of an issuance vehicle for a wide range of CLO
If you are considering such a transaction or would like to
discuss any of the issues discussed above, please do not hesitate
to contact any of the Arthur Cox people below.
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.
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