The Irish government will make changes to the tax regime of special purpose companies established for assets to close a loophole so-called “predatory companies.”
Finance Minister Michael Noonan has published an amendment to section 110 of the Law of 1997 on tax consolidation governing the taxation of such companies. He explained that “issues have been raised recently about the possible use of aggressive tax practices by some sections of the 110 companies to avoid paying tax on Irish real estate transactions.” He said that the amendment was intended to address the abuse of Article 110 and to ensure the provision fenced for bona fide purposes.
Section 110 was introduced to improve the supply of Ireland as a place to conduct financial services. According to section 110, a company must be a tax resident in Ireland and do business holding or management of “qualifying assets” that should be at least EUR10m (USD11.3m). In addition to holding or management of “qualifying assets,” the company can not conduct any other activity.
Gain or income under section 110 of the company subject to corporate tax at 25%. This is the norm for passive income, but taxable income is calculated using the normal rules that apply to trading activities. Under section 110 the company is entitled to the full deduction of interest expense, in recognition of their role in mobilizing funds for originator securitization.
“The proposed amendment is focused on the issues that were raised and ensures that Irish tax base is adequately protected. In addition, targeted suggestions for the use of the Irish property market is also considered,” added Noonan.
If any further violation of Section 110 are identified, Noonan will consider additional measures to include Finance Bill.
“I would like to reiterate the position that Ireland has extensive safeguards to protect under our tax code to prevent tax evasion. They strengthened on a regular basis to keep up with any new threats to the tax base.
After the amendment will enter into force on 6 September.