Post by Sapphire Capital on Jul 12, 2008 0:04:42 GMT 4
The Irish Finance Act 2008 was signed into law on March 13 2008. From a structured finance perspective, it extends the classes of assets (known as financial assets) that may be acquired, held, managed or entered into by qualifying securitisation special purpose vehicles (SPVs).
The meaning of financial assets
Irish tax legislation provides a beneficial tax treatment for SPVs. However, in order to qualify for this tax treatment, such SPVs are only permitted to acquire, hold or manage financial assets or enter into legally binding obligations in respect of financial assets. The current definition of financial assets includes:-
* Shares, bonds and other securities;
* Futures, options, swaps, derivatives and similar instruments;
* Invoices and all types of receivables;
* Obligations evidencing debt (including loans and deposits);
* Leases and loan and lease portfolios;
* Hire purchase contracts;
* Acceptance credits and all other documents of title relating to the movement of goods; and
* Bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments.
The Finance Act 2008 extends the current definition of financial assets to include:-
* Greenhouse gas emissions allowances;
* Contracts for insurance and contracts for reinsurance;
* Partnership interests where the partnership acquires, holds or manages financial assets.
Greenhouse gas emissions allowances
A greenhouse gas emissions allowance is an allowance, permit, licence or right to emit during a specified period, a specified amount of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), where such allowance, permit, licence or right is issued by a state or by an inter-governmental or supra-national institution. This definition covers Kyoto carbon credits (namely, CERs, ERUs and AAUs), EU carbon credits which exist under the European trading scheme, carbon credits granted under any US state-sponsored schemes (such as those proposed in California and in the eastern seaboard states) and any scheme which is adopted by another non-EU country.
An exemption from Irish stamp duty has also been introduced in respect of the transfer of greenhouse gas emissions allowances and an SPV purchasing greenhouse gas emissions allowances should not incur any irrecoverable VAT costs. As a result, it should be possible to structure bond issuances by Irish SPVs on a tax neutral basis where the bonds are backed by greenhouse gas emissions allowances. This may be of interest as an alternative offering to institutional and retail investors.
Contracts for insurance and contracts for reinsurance
The convergence of the capital markets with the insurance and reinsurance industries has led in the past number of years to innovative transactions whereby Irish SPVs have been used in insurance and reinsurance related transactions. These transactions include risk securitisations (using a special purpose reinsurance vehicle which writes a reinsurance contract to an insurer), receivables securitisations (which involve the securitisation of a stream of future earnings by insurance or reinsurance entities, such as embedded value or value in force securitisations) and asset securitisations (which involve the acquisition of insurance policies just as if the insurance policies were trade or credit card receivables).
Although contracts for insurance and contracts for reinsurance have not been specifically included in the definition of financial assets to date, it has been the long-standing practice of the Irish Revenue Commissioners to permit securitisation transactions involving contracts for insurance and contracts for reinsurance. The clear inclusion of these contracts in the revised definition of financial assets is welcomed by industry and will be particularly helpful given the recent enactment in Ireland of a regime for the establishment and authorisation of special purpose reinsurance vehicles (SPRVs) under the European communities (reinsurance) regulations 2006, as Ireland hopes to encourage the development of such SPRVs as a means of growing innovative financial services activities.
Partnerships
Partnerships are often used to hold certain types of financial assets which have been securitised. This is often for a variety of tax, legal, regulatory or market reasons. We have often been asked whether an Irish SPV could acquire interests in such partnerships to back an issue of securities. The Irish Revenue Commissioners have in the past expressed the view that the holding of any partnership interest by an SPV could prevent an SPV from being entitled to the usual beneficial tax treatment applying to SPVs.
However, it has always seemed somewhat odd that an SPV could acquire the underlying financial assets that might be held by a partnership, but that it could not acquire an interest in a partnership that itself acquires the underlying financial assets. As a result, the new Finance Act clarifies that an SPV may now hold interests in partnerships where the partnerships hold only assets that constitute financial assets. This should encourage the use of Irish SPVs for deals where the underlying investments may include private equity investments which often consist of investments in partnerships.
Source:
Turlough Galvin (turlough.galvin@mop.ie) phone: +353 1 232 2000
The meaning of financial assets
Irish tax legislation provides a beneficial tax treatment for SPVs. However, in order to qualify for this tax treatment, such SPVs are only permitted to acquire, hold or manage financial assets or enter into legally binding obligations in respect of financial assets. The current definition of financial assets includes:-
* Shares, bonds and other securities;
* Futures, options, swaps, derivatives and similar instruments;
* Invoices and all types of receivables;
* Obligations evidencing debt (including loans and deposits);
* Leases and loan and lease portfolios;
* Hire purchase contracts;
* Acceptance credits and all other documents of title relating to the movement of goods; and
* Bills of exchange, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments.
The Finance Act 2008 extends the current definition of financial assets to include:-
* Greenhouse gas emissions allowances;
* Contracts for insurance and contracts for reinsurance;
* Partnership interests where the partnership acquires, holds or manages financial assets.
Greenhouse gas emissions allowances
A greenhouse gas emissions allowance is an allowance, permit, licence or right to emit during a specified period, a specified amount of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), where such allowance, permit, licence or right is issued by a state or by an inter-governmental or supra-national institution. This definition covers Kyoto carbon credits (namely, CERs, ERUs and AAUs), EU carbon credits which exist under the European trading scheme, carbon credits granted under any US state-sponsored schemes (such as those proposed in California and in the eastern seaboard states) and any scheme which is adopted by another non-EU country.
An exemption from Irish stamp duty has also been introduced in respect of the transfer of greenhouse gas emissions allowances and an SPV purchasing greenhouse gas emissions allowances should not incur any irrecoverable VAT costs. As a result, it should be possible to structure bond issuances by Irish SPVs on a tax neutral basis where the bonds are backed by greenhouse gas emissions allowances. This may be of interest as an alternative offering to institutional and retail investors.
Contracts for insurance and contracts for reinsurance
The convergence of the capital markets with the insurance and reinsurance industries has led in the past number of years to innovative transactions whereby Irish SPVs have been used in insurance and reinsurance related transactions. These transactions include risk securitisations (using a special purpose reinsurance vehicle which writes a reinsurance contract to an insurer), receivables securitisations (which involve the securitisation of a stream of future earnings by insurance or reinsurance entities, such as embedded value or value in force securitisations) and asset securitisations (which involve the acquisition of insurance policies just as if the insurance policies were trade or credit card receivables).
Although contracts for insurance and contracts for reinsurance have not been specifically included in the definition of financial assets to date, it has been the long-standing practice of the Irish Revenue Commissioners to permit securitisation transactions involving contracts for insurance and contracts for reinsurance. The clear inclusion of these contracts in the revised definition of financial assets is welcomed by industry and will be particularly helpful given the recent enactment in Ireland of a regime for the establishment and authorisation of special purpose reinsurance vehicles (SPRVs) under the European communities (reinsurance) regulations 2006, as Ireland hopes to encourage the development of such SPRVs as a means of growing innovative financial services activities.
Partnerships
Partnerships are often used to hold certain types of financial assets which have been securitised. This is often for a variety of tax, legal, regulatory or market reasons. We have often been asked whether an Irish SPV could acquire interests in such partnerships to back an issue of securities. The Irish Revenue Commissioners have in the past expressed the view that the holding of any partnership interest by an SPV could prevent an SPV from being entitled to the usual beneficial tax treatment applying to SPVs.
However, it has always seemed somewhat odd that an SPV could acquire the underlying financial assets that might be held by a partnership, but that it could not acquire an interest in a partnership that itself acquires the underlying financial assets. As a result, the new Finance Act clarifies that an SPV may now hold interests in partnerships where the partnerships hold only assets that constitute financial assets. This should encourage the use of Irish SPVs for deals where the underlying investments may include private equity investments which often consist of investments in partnerships.
Source:
Turlough Galvin (turlough.galvin@mop.ie) phone: +353 1 232 2000