Hidden away in the text of Regulation (EU) 2021/557 (an EU regulation published in 2021 amending the EU Securitisation Regulation – Regulation EU 2017/2402), was an unusual tax reporting requirement that applies to investors in certain entities based in certain countries outside of the EU. The Irish Revenue Commissioners ("Revenue") have recently published the required form of notification that must be submitted to the Revenue by Irish investors in respect of such investments. As a result, the requirement to notify Revenue in respect of past and current periods is now an ongoing compliance obligation.
Why has this reporting obligation been introduced?
This new reporting requirement arises as part of an ongoing EU effort to discourage EU resident companies and individuals from investing in countries that appear on the EU list of non-cooperative jurisdictions for the reason of operating a harmful tax regime (the "EU List"). It is notable that the obligation to notify the Revenue of such an investment arises irrespective of whether the investor actually receives any tax benefit from making such an investment.
Regulation (EU) 2021/557 explains that securitisation special purpose entities (SSPEs), if established outside of the EU, should only be established in third countries that do not appear on the EU List. Where an SSPE is based in a country on the EU List, this new reporting obligation becomes effective in respect of any investment made by an EU entity in such an SSPE established after 9 April 2021 so that the national tax authorities can assess whether any tax benefit has been derived by the investor.
When does the reporting obligation apply?
An SSPE (as defined in the EU Securitisation Regulation) means "a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator".
This definition of SSPE is somewhat dense and applying it involves cross-referencing a number of other defined terms in the EU Securitisation Regulation. However, in an attempt to simplify the definition, in practice it is often viewed as capturing entities that issue tranched debt. As a result, at a high level, this new reporting obligation is most likely to apply where an Irish investor invests in the tranched debt of an entity based in a country on the EU List.
What countries are on the EU List?
The EU List changes every six months. The countries currently on the EU List, as of 3 March 2022, are:
- Costa Rica
- Hong Kong
- North Macedonia
- Turks and Caicos Islands
What investors are likely to be affected by this?
This new reporting requirement is most likely to affect investors that invest in public and private international debt markets, whether by way of investing in bonds, notes or senior / junior loan structures. Where an investment is being made in any entity based in a country on the EU List, an analysis of whether that entity is an SSPE within the meaning of the EU Securitisation Regulation will need to be undertaken. It would be reasonable to assume that local advisers and debt issuers will not be familiar with carrying out an SSPE analysis, so an investor will need to undertake this exercise itself.
What form does the notification take?
The Revenue has recently published the new Notification of Investment (NoI) form. The completed NoI should be uploaded to the Revenue as an attachment to an enquiry raised in "MyEnquiries" on the Revenue Online System. It is a short form that simply requires details of the investor and the investment being made. The NoI must be submitted by the tax return due date for the period in which the investment is made (for a company, this will be the date on which the Form CT1 for the accounting period in which the investment is made is due for filing, for a regulated fund, this will be the date on which the IUT return for the period in which the investment is made is due for filing).
Special provision is made for instances since 9 April 2021 where the filing date has already passed when the NoI was not available. In such cases, the NoI must be submitted by 30 September 2022.
Special provisions are also made for the possibility of countries being added onto the EU List and being removed from the EU List. For example, where an investment is made in a SSPE in a specific country at a time where that country is not on the EU List, then no NoI is required, but if that country subsequently appears on the EU List, the NoI obligation will then become effective as of the next filing date.
This new reporting obligation builds upon other EU initiatives to encourage investment in SSPEs based in the EU or other non-harmful tax jurisdictions. Any Irish based investors will need to consider this notification obligation when investing in SSPEs in countries on the EU List, and will need to monitor the EU List on an ongoing basis as countries may be added and removed every six months.
For further information, please contact Turlough Galvin, Michelle Holligan, Dualta Counihan, Jen Preston, Kevin Smith or your usual Matheson contact.