Comparaison des accords de double imposition (CDI) France / Luxembourg et France / Irlande (document en anglais)

EXECUTIVE SUMMARY

The objective of the case study is to have an experience of the Special Purpose Vehicle (SPV), meaning, firstly to understand very well what kind of investment it is. Then, once the term was understood, the second objective was to apply this concept to the taxation environment, especially in Ireland, Luxembourg and the Netherlands. The three cited States are famous for providing an adequate and attractive environment for the SPV thanks to special jurisdictions that enable low or no taxes. As students, we will analyze how Luxembourg and Ireland are currently competing for the leading SPV location. Our conclusion is nuanced. Indeed, Luxembourg is a great financial place since years and permits companies to get taxation advantages, but nowadays Ireland is also getting important thanks to the continuing implementations of new measures. 

CASE STUDY

Introduction

Ireland and Luxembourg are too countries well known as onshore jurisdictions. The both countries are for that reasons seen as favored location for special purpose vehicles (“SPVs”). Since few years the market is getting as well innovative as efficient. The consequence of this is the fact that both countries want to be defined as the best place to establish SPVs. In order to target the highest number of SPVs, they decided to adapt themselves and have very profitable and advantageous legal and tax regime. These favorable regimes will help the SPVs to decide establishing themselves in this country or either in another. Indeed, in most of the cases before establishing its location, a SPV will do a comparison between tax or regulator treatment and between initial and recurring costs.

To help the SPVs to make the best decision, we decided to delete the misperceptions that still exist in this area thanks to an analysis of the tax rules of both countries. This analysis will make it easier to choose which jurisdiction is the most favorable.

Key advantages of choosing Ireland as the SPV location

Ireland has been since few years seen as a favored location for special purpose vehicles (“SPVs”). In fact, this location is really favorable because it allows companies to minimize foreign taxes on their underlying investments.

The major reasons that explain the attractiveness of Ireland as a location for establishing SPVs are the following:

The main one is for sure the fact that Ireland is a advantageous country concerning its double taxation due to its double tax treaty network. In fact, Ireland allows its companies to pay cash flows from assets to SPV without any foreign taxes. So the benefits of this treaty will permit the companies to avoid a taxable presence in the country where the investment manager to the SPV is located. Moreover the treaty that exists between Ireland and other countries is contently expanding. In fact, more and more countries have signed these tax treaties with Ireland. Ireland has already signed comprehensive double taxation agreements with 70 countries, of which 68 are in effect according to the updated version of the article. Now other treaties are still in negotiation. The agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax.

A second characteristic that encourages SPV to choose Ireland is the fact that Ireland is a member of European Union (EU) and Organization for Economic Cooperation and Development (OECD). This fact will give Ireland the chance not to be seen as an “offshore” jurisdiction. In fact, according to OECD, offshore centers are characterized as jurisdiction that attract a high level of non resident activity because of low or no tax on business; no withholding taxes; light and flexible incorporation and licensing regimes; light and flexible supervisory regimes no need for financial institutions. But Ireland is considered as an “onshore”. Investors in some jurisdictions want to purchase debt issues by EU or OECD only, so it is not possible to locate the SPV in Cayman Islands or Mauritius. In fact, Ireland combines low corporation tax rates and tax efficiently with full member status. To summarize, Ireland is a good deal because there are tax advantages and is also located in the OECD. That is the reason why Ireland managed to attract massive international commitment. However Ireland granting political stability and special access across European market, Euro membership.

A third characteristic which is favorable to an Ireland SPV location is the fact that Irish tax legislation provides for special tax treatment in relation to qualifying SPVs. This kind of qualifying SPVs is referred to as “Section 110” companies. According to this section we can say that the “qualifying SPVs” will be taxed at 25% of its taxable profits. Moreover an important fact is that “qualifying SPVs” who want to be treated as a Section 110 need just to notify the Revenue Commissioners, no other tax rulings or authorizations are necessary in order to achieve the tax neutral status.

To finish, additionally to all these major advantages, other minor advantages need also to be taken into account in order to understand the choose of an Irish location for SPVs. Indeed Ireland is a developed country with high education level and Irish people are English speakers. So it explains why Ireland owns a high level workforce. Moreover, Ireland is a stable political and economic environment; foreign companies appreciate this point. In the same way the fact that Ireland is well deserved with planes, has a good general infrastructures is as well positive. The last point but not the least is the fact that Ireland offers as well an excellent legal and accounting/ tax infrastructure as an efficient listings of securities of the Irish Stock Exchange.

Comparison of Double Tax Agreement (DTA) of France/Luxembourg and France /Ireland

In this part, we will compare the Double Tax Agreement of France/Luxembourg and France/Ireland in order to evaluate if it is really more interesting to locate the SPV in Ireland rather than in Luxembourg. The articles that are relevant for our subject are the seven first articles of the DTA.

Article 1:

France/Ireland Double Taxation Agreement:

The convention applies to taxes on income imposed on behalf of each contracting state irrespective of the manner in which they are levied. Plus, the provisions of this Agreement have the avoidance of double taxation which permit the residents of each of the state to levy simultaneously or successively in one State or the other the taxes.

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