Aine Gibney, Senior Manager, Financial Services, Deloitte Ireland LLP: The investment funds industry is not immune from having to consider the impact of Pillar Two. Generally, an entity which is consolidated on a line-by-line basis into the group’s consolidated financial statements (or which itself is the ultimate parent entity) will be in scope of Pillar Two where the group’s revenue exceeds €750m in two of the four previous fiscal years. For the purposes of the domestic top-up tax (QDMTT), the Pillar Two rules in Ireland are extended to include standalone entities that themselves meet the revenue threshold.
Aine Gibney
The December 2023 administrative guidance considered the meaning of ‘revenues’ for Pillar Two purposes. The extension of the rules to standalone entities could be of particular relevance to the investment funds industry.
As well as reviewing the impact from a tax liability perspective, consideration should be given to the accounting disclosure, if any, that is required to be included in the audited financial statements of the entity under the relevant accounting standards.
While some funds may be in scope, there are exclusions to be considered. Irish tax legislation provides that an ‘investment entity’ should not be chargeable to the domestic top up tax in Ireland. The definition of an ‘investment entity’, at a high level, refers to an ‘investment fund’ which is further defined. The definition of both ‘investment entity’ and ‘investment fund’ is broadly aligned with OECD Model Rules and the EU Directive. Further, certain entities, referred to as excluded entities (such as an investment fund that is the ultimate parent entity), are outside the scope of the rules.
Investment managers and other service providers in the industry need to calculate if they will have a top-up tax payable in Ireland in respect of the current year and the cash tax impact on the relevant fund, management company or other entity type. While there are helpful exemption or exclusions provided in the law, each structure should be considered on a case-by-case basis.
This article appeared in the April 2024 edition of the Irish Tax Monitor.
