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Ireland Enhances its Tax Regime for Investment Fund

AUTHOR(S): Anne-Marie Bohan, Tara Doyle, Dualta Counihan, Joe Beashel, Shay Lydon, Elizabeth Grace, Michael Jackson, Gerry Thornton
PRACTICE AREA GROUP: Tax, Asset Management and Investment Funds
DATE: 23.02.2012

The Irish government has recently published Ireland’s Finance Bill 2012 which proposes some very welcome measures for the Irish investment funds industry. The Bill highlights Ireland’s continued commitment to having a clear and flexible tax regime for investment funds. The measures are focused on facilitating the inbound (and outbound) cross-border mergers of funds, with a view particularly to UCITS IV, together with specific reliefs for both the amalgamation and the switching of units in foreign funds. Finally, there have been some welcome improvements for Ireland’s domestic exempt unit trust regime, mainly used by Irish pension funds.

Inbound cross-border mergers and migrations

The Bill proposes a number of measures which will enhance investment funds’ ability to migrate into Ireland or merge with Irish funds.

  • Inward migrations  Irish funds generally need to obtain a declaration from non-Irish investors confirming that they are resident outside Ireland.  However, the Bill puts on a legislative footing an administrative practice that permits funds which migrate into Ireland to dispense with this requirement for their existing investors, once the fund itself makes a straightforward declaration to the Irish tax authorities that, to the best of its knowledge, none of the investors are resident in Ireland. This is a helpful measure in reducing the administrative requirements of migrating funds to Ireland.
     
  • Inward mergers  The Irish tax regime facilitates schemes of migration and amalgamation under which foreign funds transfer their assets to Irish funds in exchange for the issue of new units by the Irish fund. Previously, those new units needed to be issued to the investors themselves to qualify for the regime. The Bill now extends the regime to permit those new units be issued to the foreign fund itself (instead of to the investors), giving more flexibility to investors and managers in arranging inward mergers.
     
  • Inward mergers and Irish investors  The advent of UCITS IV has also been recognised by facilitating Irish investors who hold units in EU regulated funds (and funds domiciled in other specified onshore territories) to participate - on a tax neutral basis - in inbound mergers under which foreign funds transfer their assets to Irish funds in return for the issue of new units to the Irish investors. This ensures that Irish investors are treated in the same way whether mergers takes place between two Irish funds or between an Irish fund and a qualifying foreign fund. The relief is not restricted to UCITS funds but extends to all EU regulated funds and other qualifying funds which are equivalent to Irish regulated funds.

Irish investors switching units between EU sub-funds

The Bill includes measures to ensure that Irish tax resident investors may switch units freely between sub-funds in EU regulated funds (and funds in other specified onshore territories) without triggering a charge to Irish tax. This mirrors the established position for investors in Irish umbrella funds and facilitates ‘switching’ on a tax neutral basis. The Bill also confirms that no stamp duty will arise on these switches.

Amalgamations of EU funds

The Irish tax regime already provides relief for Irish investors on the amalgamation of EU regulated funds.  The Bill now expressly confirms that no stamp duty will arise on such amalgamations (though, in most circumstances, it is unlikely that a charge to stamp duty would arise in any event).

Exempt unit trusts

Exempt unit trusts are a form of unregulated Irish fund which are typically used as investment vehicles for pension funds and charities. The Bill introduces two measures with respect to these investment fund vehicles:

  • Transfers of units in exempt unit trusts  The Bill provides for an exemption from stamp duty on the transfer of units in such exempt unit trusts.  This is a welcome step as the stamp duty cost of the transfer of such units had impacted on the liquidity of such holdings.  
  • Amalgamations of exempt unit trusts into regulated Irish funds  The Bill provides for an exemption from stamp duty on the transfer of the assets of exempt unit trusts to regulated Irish funds.  This reflects a demand from investors to remove barriers from reorganising pension investments into regulated investment vehicles.

Conclusion

This year’s Finance Bill can be fairly described as providing for a number of welcome technical improvements to the Irish tax regime for investment funds. These measures will help Ireland continue to offer the leading regulatory and tax environment in which to establish and develop investment fund businesses.

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