knowledge | 17 January 2020 |
New Security Filing for Transferees of Fixed Charges on Book Debts
An amendment made by the Finance Act 2019 (enacted 22 December 2019 but only recently published) has created a new security filing which transferees of fixed charges on book debts should consider as a matter of priority.
What is the new filing?
A transferee (“Transferee”) of a fixed charge on the book debts of an Irish company (a “charge”) must now send a notification (a “s1001 notification”) to the Irish Revenue Commissioners (“Revenue”) if it wishes to limit the scope of its potential liability for certain overdue tax liabilities (relating to employee income tax, VAT and local property tax, “relevant liabilities”) of the company that granted the charge.
While it is standard practice for the relevant charge-holder at the time of creation of such a charge to make a s1001 notification, a Transferee of that charge may (but would not necessarily) have made a further notification to Revenue in respect of its transfer (and such notifications were not previously provided for in the underlying legislation). Even where a Transferee did make such a further notification, it may not have included all of the required information (set out in further detail below).
Background: what does section 1001 do?
Section 1001 of the Taxes Consolidation Act 1997 (“s1001”) is an infamously convoluted provision. Broadly summarised:
- s1001 allows Revenue to make the holder of a charge liable for relevant liabilities of the company that granted the charge. The liability of the charge-holder is limited to amounts received directly or indirectly from the company while the charge is in existence (with recourse to amounts received prior to the Revenue Notice mentioned below excluded);
- to impose this liability on a charge-holder a number of conditions must be met, including written notice from Revenue to the charge-holder (the “Revenue Notice”);
- a charge-holder can protect itself by making a s1001 notification within 21 days of the creation (or transfer, since 22 December 2019) of the charge. The effect of a s1001 notification is that the charge-holder is not liable for any relevant liabilities incurred by the company prior to the date on which the charge-holder receives the Revenue Notice.
The amendment to s1001 effected by the Finance Act 2019 was to extend (from 22 December 2019) the s1001 notification mechanism to Transferees.
Retrospective effect for Transferees
It is important to note that this extension of the s1001 notification mechanism has retrospective effect. To exclude liability in respect of amounts received prior to its receipt of a Revenue Notice in connection with any charge transferred to it, including one transferred before s1001 was amended on 22 December 2019, a Transferee must make a s1001 notification in respect of that charge. The deadline for making retrospective s1001 notifications in respect of charges already transferred to a Transferee is due to expire shortly, on 31 January 2020 (or within 21 days of the transfer of the charge if that is later).
What needs to be included in a s1001 notification?
To make a s1001 notification (whether on the creation or transfer of a charge), the relevant charge-holder must provide the following details in writing to Revenue:
- the name of the company on whose book debts the charge has been created;
- the registration number of the company as issued by the Companies Registration Office to that company;
- the tax registration number of the company as issued by the Revenue Commissioners to that company;
- the date the fixed charge was created or transferred, as the case may be; and
- the name and address of the holder of the fixed charge.1
This information must be provided through Revenue’s online service, which requires registration on the relevant Revenue system.
For Transferees such as loan portfolio purchasers and security trustees replacing existing security trustees, the amendment effected by the Finance Act 2019 may be considered as both good and bad.
From a positive perspective, a Transferee now has a clear statutory mechanism which it can use to ensure that it has the protection afforded by a s1001 notification when it acquires charges. Whereas certain Transferees may, prior to 22 December 2019, have made notifications to Revenue regarding charges transferred to them (and, in practice, the validity of any such notifications was not challenged by Revenue on the basis that no express provision was made for them by s1001), it was not clear that making such notifications afforded any protections to Transferees.
Less positively, the obligation to make s1001 notifications retrospectively within a very short time (by 31 January 2020) is likely to be considered as posing a significant administrative challenge, especially if all of the required details (including tax numbers) are not readily available.
- Section 1001(3)(c) Taxes Consolidation Act 1997, as amended.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.