739D Gain arising on a chargeable event

Summary

This section sets out how to compute a gain arising on a chargeable event in respect of which the investment undertaking may be liable to account for tax. It also provides exemption from the exit tax for certain unit holders through a declaration procedure. However, the declaration procedure may be deemed to have been complied with in certain circumstances – for further details, refer to subsection (7B) below.

Details

(1)(a) For the purposes of the declaration procedure, the concept of an investment undertaking being associated with another investment undertaking is introduced. This implies that both undertakings are set up and promoted by the same person.

(1)(b) Since the switching of units between sub-funds of an umbrella fund is not a chargeable event, the acquisition cost of units in a sub-fund of an umbrella fund is taken to be the acquisition cost of units in the original sub-fund of that umbrella fund where such switching has taken place.

(1)(bb) A similar provision pertains in relation to the changing of investment manager in respect of funds administered by the Courts Service. As this is not a chargeable event, the acquisition cost of the original units are taken into account when such units have been subsequently exchanged for other units as a result of a change of the court funds manager.

(1)(c) Where an existing IFSC fund becomes, on 1 April 2000, an investment undertaking the acquisition cost of units in the investment undertaking are taken to be the acquisition cost of the original units in the IFSC fund.

Gains arising on a chargeable event

The gains which arise on a chargeable event are as follows —

• (2)(a) & (b) on the making of a regular payment (otherwise than on the cancellation, redemption or repurchase of a unit), the gain is the amount of the payment;
• (2)(c) & (3) on the making of a payment on the cancellation, redemption or repurchase of units, the gain is the amount of the payment less the cost of the units concerned, calculated on an average cost basis or, at the election of the investment undertaking, on a first-in first-out basis;
• (2)(d) & (4) on the transfer of units by the unit holder, the gain is the value of the units transferred less the cost of the units concerned, calculated on an average cost basis, or at the election of the investment undertaking, on a first-in first-out basis;
• (2)(dd), (5A) & (5AA) on the appropriation or cancellation of units consequent on a transfer, other than a cancellation of units to pay any exit tax on an 8-year deemed disposal, the gain is calculated using the formula in subsection (5A) (The rate used in the formula will depend on when the chargeable event occurs – see Tables in section 739E). This is based on the principle that the amount of appropriate tax represents some proportion of the total gain, so the full gain can be worked out by grossing up the tax liability on the transfer. In the case of a company, the lower of the two rates will apply only where the investment undertaking is in possession of the declaration referred to in subsection (5AA);
• (2)(ddd), (e) & (5B) where the chargeable event is the ending of an 8-year period or is deemed to happen on 31 December, 2000, the gain is the value of the units concerned at that time, less their cost. However, as regards the calculation of the amount in an 8-year deemed disposal, the investment undertaking has the option of making an irrevocable election to value the units in respect of all of its unit holders at the later of the previous 30 June or 31 December prior to the date of the deemed disposal rather than at the date of the deemed disposal itself.

Calculation of gain subsequent to a gain arising on the ending of a relevant period

(2A) Where a chargeable event (including a chargeable event consisting of the ending of an 8-year period) occurs after a chargeable event on an 8-year deemed disposal, a previous “8-year event” is disregarded in calculating the gain.

Election for first-in first-out basis of costing units

(5) An investment undertaking can elect to cost units on a first-in first-out basis instead of costing units on an average cost basis. The method of computation of gain used – by an investment undertaking on the first occasion that they are required to undertake such a computation – is the method that must subsequently be used in all circumstances (see also – “Investment Undertakings – General Guidelines for Calculating Tax Due and for Completing Declaration Forms” available on the Revenue website – www.revenue.ie).

Gains treated as not arising in certain cases

(6)(a)-(m) A chargeable event in respect of a unit holder does not arise to an investment undertaking in the case of certain persons/entities that comply with a declaration procedure. The persons/entities concerned are—

• pension schemes;
• life assurance companies;
• another investment undertaking;
• an investment limited partnership to which section 739J applies;
• special investment schemes;
• unit trusts to which section 731(5)(a) applies;
• charities;
• certain IFSC companies;
• approved retirement funds, approved minimum retirement funds and special savings incentive accounts;
• personal retirement savings accounts;
• credit unions;
• companies, in the case of money market funds;
• the National Asset Management Agency;
• the National Treasury Management Agency or a Fund investment vehicle (within the meaning of section 37 of the National Treasury Management Agency (Amendment) Act 2014) of which the Minister for Finance is the sole beneficial owner or the State acting through the National Treasury Management Agency;
• the Motor Insurers’ Bureau of Ireland in respect of an investment made by it of moneys paid to the Motor Insurers Insolvency Compensation Fund under the Insurance Act 1964 (amended by the Insurance (Amendment) Act 2018);
• the National Pensions Reserve Fund (NPRF) Commission; or, an NPRF Commission vehicle (as defined in the NPRF Act 2000, as amended by section 2 of the Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009; or the State acting through either;
• securitisation companies;
• (9A) an intermediary acting on behalf of any of the foregoing; and
• (7) & (9) persons who are neither resident nor ordinarily resident in the State or an intermediary acting on such a person’s behalf.

Provisions in relation to the format that a respective declaration must take, where this has been prescribed by the Revenue Commissioners, are set out in Schedule 2B (see also – “Investment Undertakings – General Guidelines for Calculating Tax Due and for Completing Declaration Forms” available on the Revenue website – www.revenue.ie).

Whereas the Revenue Commissioners are not required to prescribe/authorise a format for the declaration required to be made by either a ssecuritisation company or by a company investing in a money market fund, either entity is required to declare to the investment undertaking that it is chargeable to corporation tax on the investment return and to provide its tax reference number. Similarly, the Revenue Commissioners are not required to prescribe/authorise a format for the declaration required to be made to the investment undertaking by NAMA, the NPRF or an NPRF vehicle.

(7A), (9) & (9A) These unit holders need only make one declaration to an investment undertaking and other investment undertakings associated with it, rather than being required to make a declaration each time units are acquired in those investment undertakings. The requirement is to make an appropriate declaration in respect of the first acquisition of units in an investment undertaking. That declaration will also satisfy the declaration requirements in respect of any subsequent acquisition of units in that investment undertaking and any other investment undertaking associated with it.

Exemption from declaration procedure in certain circumstances

(7B) Section 31(1)(b) of the Finance Act 2010, inserted a new subsection (7B). The subsection is designed to facilitate the international funds industry operating in Ireland and to ease the administrative burden for investment undertakings that are focused on the international market rather than on domestic Irish investors.

(7B)(a) A gain is not to be treated as arising on the happening of a chargeable event if the investment undertaking has a written notice of approval from the Revenue Commissioners to the effect that the non-resident declaration requirements of subsection (7) or (9) are deemed to have been complied with in respect of a unit holder. This allows for exemption from exit tax where approval has been given (and not subsequently withdrawn) and removes the requirement for a non-resident declaration from each non-resident unit holder or from an intermediary investing on behalf of such non-resident unit holders.

(7B)(b) The Revenue Commissioners may give the approval:

• as respects any unit holder or class of unit holder, and
• subject to such conditions as the Revenue Commissioners consider necessary to satisfy themselves that unit holders in the undertaking are not resident or ordinarily resident in the State. Further details of these conditions are published in “Investment Undertakings – General Guidelines for Calculating Tax Due and for Completing Declaration Forms” available on the Revenue website – www.revenue.ie.

(7B)(c) The Revenue Commissioners are empowered to withdraw the approval where the undertaking has failed to comply with any of the conditions for approval. Where such approval is withdrawn, the treatment under section (7B)(a) will not apply from the date mentioned in the notice of withdrawal.

(7B)(d) The Revenue Commissioners may delegate any acts or functions under the subsection to any of their inspectors or officers nominated by them.

(8) & (8A) The declaration procedure is removed from non-resident investors who first invested in IFSC funds up to 30 September 2000. Instead, certain reporting obligations were imposed on the undertaking itself. (This transitional arrangement gave such funds time to redesign their application forms so as to comply with the new declaration procedure.)

(8B) Where an unauthorised unit trust (whose units are held by resident but tax exempt persons) becomes an authorised unit trust and thereby comes within the investment undertaking tax regime, and a list of the then investors is forwarded to the Collector-General within 30 days, the requirement that its investors make individual declarations under subsection (6) is removed.

(8C) Where the unit holders in such an unauthorised unit trust exchange their units for units in an investment undertaking under a scheme of amalgamation, the declaration requirements can be dispensed with if the investment undertaking, within 30 days, forwards a list of the investors concerned to the Collector-General.

(8D) As a direct consequence of the implementation of the UCITS IV Directive, “scheme of migration and amalgamation” has been extended to mean an arrangement under which the underlying assets of an offshore fund are transferred to an investment undertaking in exchange for the issue by the investment undertaking of units in the investment undertaking, to persons with a material interest in the offshore fund, or directly to the offshore fund. The declaration procedure, which would otherwise be required to be complied with by those unit holders, is removed. Instead, the investment undertaking is required, within 30 days, to make a declaration to the nominated officer of the Revenue Commissioners, to the effect that to the best of its knowledge and belief it did not issue units to resident persons other than those (if any) identified in an accompanying schedule. Exit tax will be applied to gains on future chargeable events where an investor who was non-resident at the time of the scheme of migration and amalgamation later becomes resident in the State.

(8E) Section 31 of the Finance Act 2012 inserted a new subsection (8E). This subsection is consequent on the insertion of section 1408(1) into the Companies Act 2014. Section 1408(1) provides that an investment company migrating to Ireland from a relevant jurisdiction may apply to the Central Bank for authorisation to carry on business in the State under section 1408(1) of the Companies Act 2014. The Central Bank similarly decided that a unit trust, migrating to Ireland from a relevant jurisdiction, may also apply to the Central Bank for authorisation to carry on business in the State either as an authorised unit trust scheme under the Unit Trusts Act 1990 or as a unit trust under the UCITS Regulations (as defined in section 739B(1) TCA 1997).

This subsection provides that, once authorised by the Central Bank, the holder of such an authorisation may make a declaration to the Revenue Commissioners, which will ensure that exit tax will not be applied to future payments by the investment undertaking to unit holders existing at the time of migration (other than Irish resident unit holders). The subsection also provides that, where an existing non-resident unit holder later becomes resident in the State, exit tax will be applied to any gains arising on subsequent chargeable events.

(10) Investment undertakings are required to keep all declarations for a period of 6 years from the time the unit holder of the units, in respect of which a declaration was made, ceases to be a unit holder in the investment undertaking and any associated investment undertaking.

Relevant Date: Finance Act 2021