Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 1A

Investment undertakings

Overview

Chapter 1A and Schedule 2B provide for a “gross-roll-up” taxation regime in respect of the taxation of collective funds categorised as investment undertakings. This regime applies to all IFSC funds in existence on 31 March 2000 and to all other funds set up after that date. Domestic funds existing on that date and their investors continue to be taxed under the provisions of sections 738 and 739. The gross-roll-up regime does not impose an annual tax on the profits of the fund but requires the fund/fund manager to deduct and account for the tax (known as “exit tax”) out of payments made to unit holders – except for certain classes of unit holder who can, by use of a declaration procedure, be paid gross (see also “Investment Undertakings – General Guidelines for Calculating Tax Due and for Completing Declaration Forms” available on the Revenue website – www.revenue.ie).

Schedule 2B sets out the terms of the various declarations referred to in Chapter 1A.

739B Interpretation and application

Summary

This section is an interpretation section. It also sets out the application of Chapter 1A and Schedule 2B.

Details

Main Definitions

“chargeable event” is an occasion on which a tax charge can arise in respect of a unit holder in an investment undertaking. Such occasions are—

  • the making by the investment undertaking of a regular payment to a unit holder (e.g. an annual dividend);
  • the making of any other payment by an investment undertaking to a unit holder (e.g. on redemption of units);
  • the transfer by a unit holder of his or her entitlement to a unit in an investment undertaking;
  • the appropriation or cancellation of units by an investment undertaking for the purposes of meeting appropriate tax payable on a gain arising from a transfer of units by a unit holder;
  • the ending of an 8-year period beginning with the acquisition of a unit in an investment undertaking, and each subsequent 8-year period beginning when the previous one ends, where such ending is not otherwise a chargeable event; and
  • a chargeable event is deemed to occur on 31 December, 2000 in respect of an investment undertaking which commenced on or after 1 April, 2000, or which on 31 March, 2000 was located in the IFSC.

Exclusions from chargeable event

A chargeable event does not occur on-

  • the occasion of an exchange of units in a sub-fund of an umbrella fund for units in another sub-fund of that umbrella fund or to a switch between different classes of units in the same fund;
  • any transaction in relation to units which are held in a recognised clearing system – see section 246A(2) for the meaning of recognised clearing system;
  • transactions arising only because of a change in the manager of funds administered by the Courts Service;
  • the transfer of units in an investment undertaking from one spouse to the other spouse. This also applies where such transfer is by virtue of an order made following the granting of a divorce, or a judicial separation in the State, or following a similar process in a foreign territory but which is recognised as valid in the State;
  • the transfer of units between civil partners, and between civil partners by virtue of an order made following the granting of a decree of dissolution in the State, or following a similar process in a foreign territory but which is recognised as valid in the State.

However, the transferee takes the units at their original cost to the transferor.

“investment undertaking” is the name given to the “investment vehicle” which comes within the gross-roll-up regime. The vehicle can be either—

  • a unit trust scheme authorised under the Unit Trusts Act, 1990;
  • a collective investment vehicle set up under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 as amended or extended from time to time – referred to as the “UCITS Regulations”;
  • investment companies authorised and designated by the Central Bank; and
  • an investment limited partnership within the meaning of the Investment Limited Partnership Act, 1994 which was granted an authorisation before 13 February 2013.

“qualifying management company”: This definition was revised with effect from 3 April 2010 so as to ensure that a payment by a fund to a “qualifying management company” does not trigger exit tax under this Chapter.

Inclusion of person authorised to act on behalf of an investment undertaking

(2) Because, for example, investment undertakings which are unit trusts do not act on their own behalf, but rather through trustees, references to investment undertakings in the Chapter are, where necessary, taken to include references to a trustee, management company or other such person who is authorised to act on behalf of the investment undertaking and habitually does so.

The Courts Service

The Courts Service is inter alia responsible for the administration of moneys under the control or subject to the order of the Courts. Where the Courts Service invests those moneys in an investment undertaking they are required to—

  • “stand in the shoes” of the investment undertaking or its manager when it comes to deducting and accounting for tax; and
  • make an annual return to the Revenue Commissioners giving details of gains from such investment, its allocation between the beneficiaries and certain other details.

Application of the Chapter

The provisions of the Chapter and Schedule 2B apply—

  • from 1 April, 2000, to investment undertakings which on 31 March, 2000 were specified collective investment undertakings (i.e. funds in the IFSC (known as “SCIUs”) – see section 734(1)); and
  • from the day an investment undertaking first issued units in the case of an investment undertaking commenced on or after 1 April, 2000.

[Non-IFSC funds (i.e. domestic funds) which were in existence prior to 1 April 2000 do not come within the new regime. Such funds and their investors continue to be taxed under the provisions of sections 738 and 739.]

Relevant Date: Finance Act 2021