By December last year, details of legislation that would bring Irish securitization up to date with market demands were being finalized. With the passing of the legislation earlier this month, Ireland could potentially become the jurisdiction of choice for locating SPVs.
"The new legislation is intended to make Ireland the on-shore destination of choice for the location of structured finance SPVs," said Turlough Galvin at Matheson Ormsby Prentice. "In the past, these transactions often went to Jersey and the Cayman Islands. However, arrangers increasingly seem to prefer to use on-shore SPVs, as these tend to meet their investors' criteria."
Past legislation that facilitated securitization-based transactions had become outdated and was beginning to cause difficulties in the structuring of certain transactions. "It was necessary to revisit some of the legislative requirements that made sense in respect to straightforward true sale securitizations, but that no longer made sense in respect to current structures, such as synthetic deals," said Galvin.
For example, the legislation prior to the changes required structures to identify the originator of the assets. For new breeds of structures like CDOs, where it is virtually impossible to pinpoint any one originator of assets, this meant that arrangers were turning to neighboring countries to locate SPVs. Now the law has eased the requirement, allowing acquired financial assets to be from multiple sources.
The new legislation also abolishes the $20.54 million equivalent minimum required for every transaction involving a new counter party. Instead, only a $16 million equivalent minimum is required to initialize the SPV. After the first transaction, no further financial requirements will be applied. Additionally, all payments of interest will now be tax deductible.
The SPV is now allowed to carry on the business of holding and/or managing financial assets. In the past, the SPV was required to manage financial assets. The bill also includes technical changes that improve the existing legislation regarding the ability of the SPV to claim a deduction for bad debts and to carry forward any losses incurred.
Also under the new legislation, payments of interest made by an Irish securitization to a person who is resident in an EU member state (other than Ireland), or any country with which Ireland has entered into a double tax treaty, has exemption from Irish withholding tax. Previously, such an exemption was only available for interest paid to a body corporate resident in an EU member state (other than Ireland), or to a resident in a country with which Ireland has entered into a double tax treaty, explained Galvin.
Unlike SPVs located in other on-shore jurisdictions like the Netherlands and Luxembourg, Irish SPVs do not need to obtain any special rulings or authorizations from the Revenue Commissioners, and have the benefit of Ireland's double tax treaty network and common law system. This is a point of interest that Ireland hopes could potentially spur more market participation.
"The intention behind these changes is to encourage the use of Ireland as a location for the incorporation of tax-neutral SPVs for securitization, repackaging, warehousing and other structured finance transactions," said Galvin. "As no rulings or authorizations are required from the Irish tax authorities in order to avail of the new legislation, this should make Ireland a particularly attractive jurisdiction when compared to other on-shore SPV locations."
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