Adrian Bailie (director at Highvern Ireland), Rachel Stanton (legal partner at Simmons & Simmons) and Martin Phelan (tax partner at Simmons & Simmons) discuss some practical insights from their experiences incorporating Special Purpose Vehicles (SPVs) in Ireland.

Ireland is the leading European jurisdiction for incorporating Special Purpose Vehicles (SPVs) used in structured finance and debt capital markets transactions. The latest statistics produced by the Central Bank of Ireland show in excess of 3,000 SPVs in Ireland with over €1trn in assets as of the end of Q2 2022, representing more than 26% of the European market by assets.

Why is Ireland the leading jurisdiction for incorporating SPVs?

Ireland is a desired location for SPVs for a number of reasons such as its highly developed and trusted common law legal system, favourable tax framework and extensive double-taxation treaty network.

Irish SPVs also have the benefit of access to list debt securities on EU and international stock exchanges or trading venues such as the Vienna MTF and the London Stock Exchange. This continues to attract foreign investors who wish to avail of the benefits of SPVs and quoted Eurobond exemption.

What is the process for establishing SPVs in Ireland?

An Irish SPV is typically incorporated under the Companies Act 2014 as a “designated activity company”, being a private company limited by shares (DAC) or a public limited liability company (PLC). Both companies can issue unlisted notes or debentures. However, if the purpose of the SPV is to list notes or debentures to the public, or alternative securities, it must be established as a PLC in Ireland. The SPV can be incorporated and functioning within five working days with one single member and at least two directors. SPVs are registered with the Companies Registration Office (CRO) to comply with the Irish Companies Act and taxation laws like a normal company. In addition, depending on the underlying transaction, the Irish SPV can be subject to certain EU regulations including the Transparency Directive, Prospectus Directive, Market Abuse Directive, as well as quarterly statistical reporting to the Irish Central Bank.

How are Irish SPVs structured?

To ensure bankruptcy remoteness, Irish SPVs are usually structured as orphan SPVs with the shares of the SPV held under a declaration of trust for charitable purposes. In addition, the legal documentation of the SPV will frequently include common contractual provisions such “limited recourse” and “non-petition” language, as well as restrictions on the SPV engaging in any other activities than those contemplated under the transaction.

How have corporate service providers evolved to support the Irish SPV sector?

Corporate service providers (CSPs) are at the centre of the SPV ecosystem in Ireland, providing corporate services covering the full lifecycle of the SPV to keep the structure in good standing. As part of these services, CSPs typically provide Irish tax resident directors to the SPV, facilitating the requirement for board meetings to be held in Ireland and major policy decisions taken at those meetings. The role of the CSP has evolved to support and safeguard the SPV’s interests and the CSP will often trigger the need for legal or tax advice or further clarity from the appointed auditors. Most recently, we have seen this in relation to AML requirements for Irish SPVs involved in loan origination or the impact of ATAD Interest Limitation rules.

How are SPVs taxed in Ireland?

Section 110 of the Irish Taxes Consolidation Act 1997 (TCA) is in effect the framework for Irish SPVs that enables them to attain “tax neutrality”. There are a number of requirements to be a “qualifying company” under Section 110 rules, including the SPV being resident in Ireland, being used to hold or manage a variety of income-generating “qualifying assets” and holding qualifying assets with value of at least €10m on day one of the transaction.

In addition, Irish tax laws are designed to ensure that Ireland does not impose an “additional” layer of tax on the structure, either at the company level or the investor level.  This is modified in cases where a double non-taxation outcome can be facilitated by the structure.

One point to note is currently VAT law in Ireland does not impact the management costs of SPVs. This position is changing at an EU level and it may cause VAT changes in Ireland in the future, which could impact the cost of management of the SPV.

How do ATAD I and ATAD II impact Irish SPVs?

SPVs should rarely be subject to an adjustment under the interest limitation or anti-hybrid rules. In our experience, most SPVs should qualify as a “single-company worldwide group”. As such, provided they do not owe any amounts to associated enterprises and make the appropriate annual declaration, SPVs should generally not be subject to restrictions on exceeding borrowing costs. The anti-avoidance legislation will apply in cases where the structure is being used to avoid taxation.

In summary, Ireland continues to offer a well-established environment for the global structured finance industry, bringing together a highly skilled and experienced network of specialist service providers such as legal, tax and corporate administrators to support and service the continued growth of SPV structures.