The meaning of changes to Section 110

19 September, 2016

Minister for Finance, Michael Noonan, announced that, with effect from 6 September 2016, an amendment would be made to Section 110 of the Taxes Consolidation Act 1997 to restrict the use of profit-participating loans where they are used to finance the business of s110 companies related to Irish property transactions. Transactions of s110 companies unrelated to Irish property transactions are not affected by this amendment.

Broadly, the business of a s110 company that is impacted by the amendment, referred to as 'specified property business', is that part of the s110 company's activity that involves the holding, managing or both the holding and managing of so-called 'specified mortgages'. A specified mortgage is any financial asset deriving its value, or the greater part of its value, from land in the State.

This part of the s110 company's business is to be treated as a separate business from any other business the company may carry on and, with certain exceptions, no interest above an arm's length rate will be deductible in computing the taxable profits of that part of the business. The profit calculated for this part of the business will be taxable at the 25% rate of corporation tax. However, it is intended that any unrealised gains of the s110 company arising on specified property business up to 6 September will be unaffected by the amendment.

Certain exceptions are made so that interest on profit- participating loans used in a s110 company's specified property business will continue to be fully deductible where the interest is paid to (i) a person within the charge to corporation tax in Ireland on the interest, (ii) certain approved funds, and (iii) a person resident in another EU or EEA country where a range of conditions are met.

The proposed amendment will be introduced through the Finance Act process after the Budget, and it may be that amendments may be made in the intervening time. The Minister has also said that proposals in relation to the use of funds – again in relation to Irish property – are being considered and we await further detail on these.

On a somewhat separate note, the Minister also referred to the use of charitable trusts by s110 companies as being subject to a separate review.

On the positive side, the Minister has strongly recognised the importance of both the securitisation and the funds industries in the broader IFS sector, referencing in particular the significant employment created within that sector.

These changes will require very careful consideration. Please get in touch with your usual PwC contact to talk through the full implications of the proposed changes.

Contact us

Jim McDonnell

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6836

Johanna Dehaene

Corporate Communications, PwC Ireland (Republic of)

Tel: +353 1 792 6547

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