When developing a solar project in Ireland, it is common to use a special purpose vehicle (SPV), which is a separate company set up specifically to hold and operate that single project, keeping its costs and risks in the one place. One question that often arises is when that SPV is regarded as “trading”for Irish corporation tax purposes. In simple terms, this is about identifying the point at which the company moves from preparing the project to actually running a business that earns income, as this timing affects how the company is taxed.

The term trade is defined in the Irish tax legislation as “every trade, manufacture, adventure or concern in the nature of a trade”.  However, the Irish tax legislation does not elaborate on how to test when a company starts trading.

Why trading status matters?

Determining when a solar SPV is trading is important as it affects a number of tax outcomes, including:

• When development and operating costs become tax deductible
• The treatment and utilisation of tax losses
• The applicable corporate tax rate
• The timing of interest deductibility on project finance

As there is no statutory definition of what constitutes a trade, the decision as to whether there is a trade in any particular case depends on an evaluation of all the facts and circumstances.

In early stages, a solar SPV may be involved in feasibility studies, site identification or high-level option evaluation. At this point, these activities are often viewed as pre-trading rather than trading.

The point of commencement to trade is considerably more complex with regard to infrastructure projects such as renewables. In practice, it is generally accepted that the date of commencement to trade for a renewable energy project needs to be considered on a case-by-case basis. Energisation is the point where a Solar SPV will be generating electricity and supplying this to its customers. Therefore, there is no doubt that the trading test has been met at the point of energisation. However, it is important to acknowledge that there has been significant activity undertaken during the development and construction phase, prior to energisation which could be considered to amount to trading based on relevant case law.

Solar infrastructure assets differ from other more traditional businesses as they have a significant development phase during which there is financial risk borne, substantial preparatory steps and ancillary steps taken to create a trade which involves milestones such as:

• Engaging with various regulatory bodies including An Bord Pleanála/Eirgrid,
• Securing a revenue stream via RESS or CPPA and
• Securing finance to construct the asset.

These steps all require having significant capital at risk and the project taking on a number of obligations in advance of becoming operational. In these cases, there is limited guidance from Irish Revenue regarding what stage (prior to energisation) such activity could be deemed to constitute a trade.

Due to the lack of legislative guidance, the badges of trade are often reference by the courts in deciding whether an activity constitutes the carrying on of a trade for tax purposes. These badges arose from the UK Courts and are not binding in Irish Courts, however, in practice the Irish courts regard them as a persuasive authority.

1. Profit Motive
2. Frequency or number of similar transactions
3. The length of the period of ownership
4. The subject matter of realisation
5. Supplementary work on or in connection with the property realised
6. Circumstances giving rise to the realisation

Irish Revenue guidance on trading activities references the badges of trade, and provides that:

• Whether a trade is being carried on is determined by an examination of the facts of the particular case and by interpreting those facts in the context of the badges of trade and case law in so far as it applies
• No fixed formula can be applied and there is an infinite variety of possible factual circumstances
• Trading presumes that the company concerned is carrying on business activities from which income arises and that this activity requires people with appropriate skill and authority to carry out those activities.

Irish Revenue have not published guidance for companies with renewable energy generation trades.

Ultimately, the point at which a solar SPV is regarded as trading depends on its specific facts and activities. There is no single trigger date that applies in all cases. Instead, the focus is on whether the SPV’s actions demonstrate that it has moved into an active, profit-seeking trade of electricity generation and supply.

For Solar Developers with multiple SPVs, it is good practice to document this position clearly, including board decisions, contracts entered into and the commercial rationale for treating SPVs as trading.