On 6 September 2021, the Irish Revenue Commissioners issued guidance on the tax treatment of companies which qualify under section 110 of the Taxes Consolidation Act 1997. These are frequently referred to as "section 110" companies. The guidance addresses a number of significant points which arise from amendments made in 2019 and 2020.
Firstly, the guidance contains Revenue's view on the concept of a "specified person". These are persons who control a section 110 company. Interest paid to a specified person may be non-deductible. The guidance notes that a person can "control" a company by having both an ability to participate in the decisions of the company and an economic interest of over 20%. Some helpful reference is made to accounting standards (IFRS 11) to illustrate how control might be adjudicated upon. The guidance does not provide any clear exclusion for entities holding their economic interest for regulatory purposes, such as CLO managers. Ultimately, it may take legislative action on the concepts to provide the level of certainty some require in capital markets transactions.
Secondly, the guidance addresses the treatment of section 110 companies in the context of transfer pricing. It notes that transfer pricing rules do not apply to results dependent interest paid by a section 110 company.
Finally, the guidance notes Revenue's position that section 110 companies are chargeable to tax on distributions from Irish tax resident companies. This point has been debated between practitioners for several years due to the conflicting nature of the Irish tax provisions. In equity holding structures, the use of a "normal" Irish holding company, which is clearly exempt from tax on dividends, may be preferable to a section 110 company.
Overall, practitioners will welcome the release of the guidance. Ireland is likely to have a busy legislative schedule this Autumn, with the introduction of the Anti-Tax Avoidance Directive Interest Limitation and Reverse Hybrid rules. There will be lots more to grapple with in the coming months.
Tax and Duty Manual Part 04-09-01, which provides guidance on the tax treatment of qualifying companies under section 110, has been updated