# Ireland: Section 110 + ICAV — the US-friendly tax-neutral conduit > How an Irish Section 110 SPV zeroes its tax base through profit-participating notes, why the ICAV can check-the-box and kill PFIC, and where ATAD and anti-hybrid bite. Author: Алёна Дунаева — юрист, Family Office (https://wiki.private.law/authors/dunaeva) Last modified: 2026-06-15T09:27:00.000Z Canonical: https://wiki.private.law/en/ireland-section-110-icav Topics: structures Jurisdictions: ireland Semantic tags: spv --- **Lawyer, Family Office** --- # The concept Ireland does not win on the headline rate — corporation tax is the standard 12.5%, and passive income is taxed at 25%. The appeal of the Irish structure lies elsewhere: a pairing of two purpose-built tools — the Section 110 company and the ICAV — lets investment income pass through Ireland with almost no tax at the level of the structure itself, and without creating problems for a US investor. Section 110 is the qualifying-company regime under Section 110 of the Taxes Consolidation Act 1997, originally designed for securitisation and today serving private credit, CLOs, debt funds and aviation leasing. The mechanics are elegantly simple: the SPV is funded through profit-participating notes (PPNs) — notes whose coupon is linked to profit. That coupon is deducted as interest, so the SPV's taxable base shrinks to a token retained margin. The income flows to the noteholders, and there is almost nothing left to tax at the level of the Irish company — that is tax neutrality. The ICAV is the Irish Collective Asset-management Vehicle under the ICAV Act 2015, a corporate fund supervised by the Central Bank of Ireland. Its key feature for our purposes is the ability to make a US check-the-box election and become a transparent partnership for US tax. That is precisely what removes the PFIC risk for an American investor — a risk that almost any opaque foreign corporate fund carries. > 🍓 Ireland is cheap by design, not by rate. Section 110 zeroes the SPV's base down to a token margin through the deduction of profit-participating notes, while the ICAV can check-the-box and so stays transparent for the US — something neither a Lux SICAV nor a Singapore VCC offers. The result is a tax-neutral EU conduit that does not turn into a PFIC trap for an American beneficiary. # How Section 110 zeroes the base The key to the regime is two words: profit-participating. An ordinary company pays tax on profit; a Section 110 company converts almost all of that profit into a deductible funding cost, leaving nothing to tax. ## Profit-participating notes and the deduction The SPV issues notes whose return depends on the performance of the portfolio. Under the general Section 110 rule that results-dependent coupon is deducted as interest — even though, economically, it is a distribution of profit. After the deduction the company is left with only a thin retained margin (often token amounts), on which the 25% rate applies. The effective burden on the income passing through is close to zero. - Qualifying assets are defined broadly: financial assets, receivables, securities, derivatives, and certain tangible assets such as aircraft — anything generating qualifying income. - That makes Section 110 a universal wrapper for private credit, loan portfolios, CLOs, distressed debt and structured finance. - The company must be Irish tax-resident and must carry on the business of holding and managing qualifying assets. - The regime runs on self-assessment: no separate approval is required, but a notification must be filed on time and the Section 110 conditions strictly met. ## The €10m day-one threshold Entry to the regime is quantitatively gated: the company must acquire qualifying assets with a market value of at least €10 million on the very first day it begins to hold them. This is not an annual turnover figure but a day-one test — it immediately filters out small structures and sets a minimum scale. ## What it gives you in practice Section 110 is not a 'zero-rate relief' but a tax-neutral conduit: Ireland passes the income on, retaining a minimum, and does so in a respectable EU jurisdiction with a wide network of double-tax treaties. For cross-border debt and funds, that combination of neutrality and reputation often matters more than a formal zero somewhere offshore. # ICAV: why it is US-friendly Section 110 solves the tax question at the SPV level, but not the investor question. This is where the ICAV comes in — a corporate fund that can do what its European and Asian peers cannot. ## Check-the-box and the death of PFIC For an American investor an opaque foreign fund is almost always a PFIC, with a punitive tax regime and heavy reporting. The ICAV can make a check-the-box election and become a partnership (transparent) for US tax: the income then flows to the investor directly, without a PFIC overlay. The drafters of the legislation make this explicit: an ICAV can elect its classification under the US check-the-box rules and be taxed as a partnership — unlike an ordinary VCC, which cannot and which gives rise to the PFIC problem. ## How the ICAV differs from a Lux SICAV and a Singapore VCC A Luxembourg SICAV and a Singapore VCC are also respectable corporate funds, but they remain opaque for the US and do not deliver the same clean check-the-box effect. For a family with an American beneficiary that is the decisive difference: the Irish Section 110 + ICAV pairing gives both neutrality at the level of the structure and transparency at the level of the investor. Lux and Singapore solve the first problem but leave the second open. # Where it is used The typical user of the regime is not 'a single person with one share' but a structure that holds and services financial assets at scale. Private credit funds and CLOs use Section 110 as a tax-neutral wrapper for a loan portfolio. A family office wraps its private debt and co-investments in an ICAV + Section 110 so that the tax at the level of the structure is minimal and the American family members do not fall into PFIC. Aviation leasing has historically lived in Section 110 thanks to the express treatment of aircraft as qualifying assets. > 🍓 Put simply: Section 110 is about the structure's tax, the ICAV is about the investor's tax. Together they deliver something rarely found in a single jurisdiction: a tax-neutral conduit inside the EU that is transparent for the US. That is why the pairing is especially valuable where a US person sits among the beneficiaries. # How it assembles into one structure In practice the layers are arranged so that each closes its own task — neutrality, transparency, a regulated wrapper and asset isolation. - The ICAV (often an umbrella with segregated sub-funds) — the regulated corporate shell of the fund, making the check-the-box election for US transparency. - A Section 110 SPV beneath the fund — the tax-neutral holder of the debt and asset portfolio, funded through profit-participating notes. - Investors come in through notes or fund interests; Americans get a pass-through (transparent) position instead of a PFIC. - For simpler cases the same transparency effect is delivered by an ordinary investment limited partnership (ILP) or LP instead of a corporate fund. # Risks and limits The regime is elegant but not 'free': its neutrality rests on several conditions, and each of them is a potential point of failure. > ⚠️ Section 110 tax neutrality is not automatic. Three mechanisms steadily erode it: the ATAD interest limitation rule, the anti-hybrid rules, and Section 110's own anti-avoidance tests on the deduction of profit-participating interest. The structure must be built so that the PPN deduction survives all three. Let us walk through where, exactly, neutrality can leak. - ATAD interest limitation rule (Directive 2016/1164, applying to periods from 1 January 2022): caps the net interest deduction at 30% of EBITDA. A classic bankruptcy-remote orphan SPV is usually unaffected (the group-debt rules apply), but consolidated and intra-group structures must run the ILR. - Anti-hybrid rules (ATAD 2): they target transactions between associated enterprises and can deny the PPN deduction where a mismatch arises on the other side — a double deduction or a deduction without inclusion. - Section 110's internal anti-avoidance tests: the deduction of profit-participating interest is restricted depending on who the recipient is (the specified-person test) and whether the debt is tied to Irish real estate (the specified property business). For private credit this is usually clearable, but it is checked in advance. - Substance and Pillar Two: groups with turnover above €750m are within the global minimum tax; Finance Act 2025 brought technical clarifications for securitisation entities, giving them certainty on top-up tax. A standalone orphan SPV outside a large group is usually outside Pillar Two, but this is checked against the specific structure. # FAQ Short answers to what people usually ask first. ### Is Section 110 an offshore scheme? No. Ireland is an EU and OECD member with a standard 12.5% rate and full transparency (CRS, DAC, a beneficial-ownership register). Section 110 is not secrecy or a zero rate but a lawful regime for deducting funding costs, leaving the company a minimal taxable margin. The income is taxed further down — in the hands of the noteholders. ### Why an ICAV rather than a Luxembourg SICAV? Both are respectable corporate funds, but the ICAV can make a US check-the-box election and become a transparent partnership for US tax. A SICAV and a Singapore VCC cannot, and leave a PFIC risk for the US investor. Where Americans sit among the beneficiaries, that difference is usually decisive. ### What exactly zeroes the tax inside Section 110? The deduction of profit-participating notes. The coupon on those notes is linked to the portfolio's performance and, under the Section 110 rules, is deducted as interest. After the deduction the company is left with only a token retained margin, taxed at 25%. The effective burden on the income passing through is close to zero — hence the term tax-neutral. ### Is there a minimum size? Yes. The company must acquire qualifying assets with a market value of at least €10 million on the first day it begins to hold them. This is a day-one threshold that filters out small structures; it is not about annual turnover. ### Is it safe for an American beneficiary? Built correctly, yes. A transparent ICAV (with check-the-box) or an ILP/LP make the investor's position pass-through, removing PFIC. But the American's own tax does not disappear: the US taxes worldwide income, and where CFC/PFIC elements or a misclassification appear, the regime can turn against the investor. It is a matter of careful structuring and reporting, not an 'exemption'. --- **Related solutions: **[Malta 6/7 refund: ~5% effective with a 5-year ruling](https://wiki.private.law/en/malta-six-sevenths-refund) · [Hong Kong FIHV: 0% for the family-owned holding vehicle](https://wiki.private.law/en/hong-kong-family-office-fihv). --- ## FAQ ### Is Section 110 an offshore scheme? No. Ireland is an EU and OECD member with a standard 12.5% rate and full transparency (CRS, DAC, a beneficial-ownership register). Section 110 is not secrecy or a zero rate but a lawful regime for deducting funding costs, leaving the company a minimal taxable margin. The income is taxed further down — in the hands of the noteholders. ### Why an ICAV rather than a Luxembourg SICAV? Both are respectable corporate funds, but the ICAV can make a US check-the-box election and become a transparent partnership for US tax. A SICAV and a Singapore VCC cannot, and leave a PFIC risk for the US investor. Where Americans sit among the beneficiaries, that difference is usually decisive. ### What exactly zeroes the tax inside Section 110? The deduction of profit-participating notes. The coupon on those notes is linked to the portfolio's performance and, under the Section 110 rules, is deducted as interest. After the deduction the company is left with only a token retained margin, taxed at 25%. The effective burden on the income passing through is close to zero — hence the term tax-neutral. ### Is there a minimum size? Yes. The company must acquire qualifying assets with a market value of at least €10 million on the first day it begins to hold them. This is a day-one threshold that filters out small structures; it is not about annual turnover. ### Is it safe for an American beneficiary? Built correctly, yes. A transparent ICAV (with check-the-box) or an ILP/LP make the investor's position pass-through, removing PFIC. But the American's own tax does not disappear: the US taxes worldwide income, and where CFC/PFIC elements or a misclassification appear, the regime can turn against the investor. It is a matter of careful structuring and reporting, not an 'exemption'. --- ## Factual claims - Lawyer, Family Office - Ireland does not win on the headline rate — corporation tax is the standard 12.5%, and passive income is taxed at 25%. - Section 110 is the qualifying-company regime under Section 110 of the Taxes Consolidation Act 1997, originally designed for securitisation and today serving private credit, CLOs, debt funds and aviation leasing. - The ICAV is the Irish Collective Asset-management Vehicle under the ICAV Act 2015, a corporate fund supervised by the Central Bank of Ireland. - Entry to the regime is quantitatively gated: the company must acquire qualifying assets with a market value of at least €10 million on the very first day it begins to hold them. - Section 110 is not a 'zero-rate relief' but a tax-neutral conduit: Ireland passes the income on, retaining a minimum, and does so in a respectable EU jurisdiction with a wide network of double-tax treaties. - Section 110 solves the tax question at the SPV level, but not the investor question. - Private credit funds and CLOs use Section 110 as a tax-neutral wrapper for a loan portfolio.