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| Financial Law Update | Back to article summary. |
| Finance Bill a step toward Government aim to make Ireland premier European hub for investment funds | ||
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| The pro-investment funds taxation measures contained within the Finance Bill 2010 build on Ireland’s existing strengths as an international fund domicile, writes LIZ GRACE | ||
Important tax changes for Irish investment funds were announced on 4th February 2010 through the publication of the Finance Bill 2010 (the ‘Finance Bill’). Following on from the Government’s commitment earlier in December to position Ireland as the premier European hub for the international funds industry in light of European Union (‘EU’) legislative changes, specific new measures to enhance Ireland’s competitiveness as an investment funds domicile, and as a location for UCITS IV management companies, have been introduced through the Finance Bill. These new developments will be of significant strategic interest to asset managers considering Ireland as an international centre for global funds distribution and for fund managers who may be seeking to avail of the new redomiciliation procedures for corporate funds to Ireland announced in December.
The Finance Bill, which is expected to be enacted by 9th April 2010, includes the following measures: Tax treatment of UCITS IV management companies - Ireland moves ahead of competitors Pursuant to the UCITS IV Directive, which is due to become law next year, UCITS management companies will be permitted to passport their services on a cross-border basis throughout the EU, ie a UCITS management company established in one EU member state will be permitted to manage a UCITS fund domiciled in another member state. Tax concerns had surrounded these proposed arrangements, specifically in relation to the spectre of double taxation - the fear that if a fund domiciled in member state A is managed by an entity in member state B, the tax authorities of member state B could, for example, consider that all of the fund’s activities actually take place in member state B, with the potential consequence that the fund could be taxed twice. In the absence of legislative clarification, asset managers have been understandably concerned. Against this backdrop, a most welcome development for the Irish funds industry, and one which will give Ireland an early mover advantage over other EU jurisdictions, has been introduced through the Finance Bill. In advance of the introduction of the UCITS IV Directive, the Finance Bill ensures that UCITS funds which are established in other member states, but which are managed by Irish resident management companies, will not come within the charge to Irish tax. The necessary legal provisions to copperfasten this position are introduced through the Finance Bill, providing much-needed certainty around the issue. The result of the new provisions is that a UCITS formed under the law of an EU member state other than Ireland will not be liable to tax in Ireland by reason only of having an Irish management company. This initiative enhances Ireland’s attractiveness as a location for UCITS IV management companies and moves Ireland ahead of its competitor jurisdictions in this regard. Non-resident tax declaration no longer required for certain funds Another welcome development in the Finance Bill relates to an initiative to reduce the administrative burden associated with the collection of nonresident tax declarations within the funds sector. As the vast majority of Irish domiciled funds are distributed solely to non-Irish residents, it may be perceived that the current non-resident tax declaration requirements operate as a disproportionate administrative burden on the industry. The Finance Bill seeks to introduce a new procedure which funds may avail of in certain circumstances to relieve the collection of non-resident declaration forms for foreign investors in Irish-domiciled funds. Subject to the fund fulfilling the conditions as are necessary to satisfy the Irish Revenue Commissioners the ‘Irish Revenue’) that appropriate equivalent measures have been established to ensure that unitholders in the undertaking are not resident or ordinarily resident in Ireland, the Irish Revenue may grant the exemption. The objective behind this new measure is to enhance Ireland’s competitiveness by reducing disproportionate administrative burden and the associated costs, whilst at the same time increasing efficiencies of the distribution process. The insertion of this new provision follows extensive engagement by the Irish Funds Industry Association (‘IFIA’) with the Department of Finance and the Irish Revenue, and these parties are again working closely together with respect to establishing the conditions which will be sufficient to satisfy the requirement for the appropriate UCITS IV measures. It is understood that, upon the relevant provisions in the Finance Bill becoming law, guidance on the matters to be undertaken by a fund to satisfy the requirement for appropriate measures will be issued by the Irish Revenue. Stamp duty relief, merging funds and fund re-organisations The Finance Bill extends an exemption from stamp duty in relation to fund reorganisations, reconstructions or amalgamations to capture situations where an Irish fund, in exchange for assets transferred, issues units directly to a foreign fund, rather than to the foreign fund’s unitholders. This change will facilitate the master/feeder structures envisaged under UCITS IV, and the redomiciling of investment funds more generally. A further amendment included in the Finance Bill extends the exemption from stamp duty for transfers of assets within certain unit trusts. This eliminates any possible technical exposure to stamp duty for the transfer of assets from one subfund to another within an investment fund structured as a unit trust. Technical amendments The Finance Bill also provides for some technical amendments with funds relevance. One of these relates to the removal of the reference to the IFSC and Shannon (as the old IFSC and Shannon regimes have ceased) from the definition of ‘qualifying management company’ which is now defined as a company that, in the course of a trade of managing investments, manages the whole or any part of the investments and other activities of an undertaking. This technical amendment clarifies the reference to ‘qualifying management company’ in the context of categories of exempt Irish resident shareholders listed in section 739D(6) of the Taxes Consolidation Act, removing any uncertainty connected to the outdated reference to IFSC or Shannon operations. A further technical amendment in the Finance Bill provides for the elimination of a possible technical exposure to gift or inheritance tax in the context of non-domiciled funds administered in Ireland. Additional competitiveness measures within the Finance Bill The package of measures contained within the Finance Bill extends to a number of other areas of financial reform, some of these relate to the following: • Provisions to develop and facilitate Islamic finance in Ireland: the tax treatment applicable to conventional finance transactions will broadly be extended to embrace equivalent Islamic finance. This move is consistent with the development of Shari’ah compliant investment funds, and the establishment by the Financial Regulator of a dedicated regulatory unit for the authorisation of Shari’ah funds in Ireland. • Provision for the ratification of a further six double taxation treaties: bringing the total of double tax treaties signed by Ireland to 56, with a further 11 close to being finalised. • Provisions to attract highly skilled, value-added individuals to work in Ireland: tax measures are introduced through the Finance Bill to enhance Ireland’s ability to attract highly skilled and qualified individuals to work in Ireland. New procedures for re-domiciling investment fund companies to Ireland Last December, new provisions were signed into Irish law which streamline the process for re-domiciling investment funds structured as corporate vehicles, which can now migrate to Ireland as UCITS or non-UCITS through a reregistration. With managers of alternative funds in offshore jurisdictions under increased pressure from distributors and institutional investors to offer regulated product, this development presents asset managers with additional opportunities through the relocation of their corporate funds to a regulated European domicile. Whilst not requiring specific amending provision in the Finance Bill, the relevant changes to the tax environment referred to in this note as proposed by the Finance Bill will be of benefit to such redomiciled funds, as appropriate. Schedule By introducing these new tax measures through the Finance Bill, the Irish Government has followed through on its public commitment last December to strengthen Ireland’s international standing as the jurisdiction of choice for investment funds, and for UCITS IV management companies. With a robust, well-understood, common law legal infrastructure and unparalleled expertise and experience in sophisticated fund structures and strategies, Ireland has always offered significant advantages for asset managers seeking a regulated jurisdiction for their funds. This most recent package of tax reforms increases Ireland’s profile as a place to do business, and underlines its attractiveness for theinternational funds industry. The Finance Bill creates certainty around the Irish tax treatment of UCITS IV matters ahead of time, facilitating early strategic planning for UCITS IV opportunities. The provisions discussed in this note are currently passing through the legislative processes. The contents of the Finance Bill become law when passed as an Act. At the time of writing, the Committee Stage of the legislative process was drawing to a close, with the Report Stage and the Seanad Stage to take place in March. Following the passing of the Finance Bill by both Houses of the Oireachtas, it is expected that the last day for the signing into law of the Finance Bill by the President is 9th April 2010. |
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Liz Grace is a consultant in the asset management and investment funds group at Matheson Ormsby Prentice. |
