Revenue Note for Guidance

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Revenue Note for Guidance

1035A Relieving provisions to section 1035

Summary

The purpose of this section is to remove a potential liability to Irish tax that might arise to a non-resident who avails of the services of an investment/asset manager who is resident the State. Under section 1035, where a non-resident person earns profits or gains in the State from any agent, partnership, etc. in the State, that person is assessable to income tax under section 1035 in the name of that agent, factor, etc. However, section 1035A removes such liability in the case of a non-resident who avails of the services of an independent authorised agent who is an investment or asset manager resident in the State.

Details

(1) Definitions for the purposes of section 1035A are “authorised agent”; “authorised member firm”; “competent authority”; “financial trade”; “investment business firm”; “relevant Directives”; “relevant UCITS”; “AIF”; “AIFM”; “branch or agency”; “EEA state”; “relevant AIFM Directives” and “investment business services”.

An authorised agent is essentially a person authorised under:

  1. the Investment Intermediaries Act 1995,
  2. Regulation 8 of the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) or,
  3. an authorisation which corresponds to 1 or 2 above which has been given by a competent authority in a Member State for the purpose of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 and which provides an investment service through a branch or agency in Ireland pursuant to the European Union (Markets in Financial Instruments) Regulations 2017.

An authorised agent can also be a credit institution within the EU.

The definition of “authorised agent” was expanded with effect from 3 April 2010 to ensure that a management company envisaged by Directive 2009/65/EC (UCITS IV) can benefit from the relief, under this section, from the charge to tax under section 1035. The definition covers a management company of a type envisaged by the UCITS IV Directive as follows:

  • a company authorised under Irish regulations implementing UCITS IV, and
  • a company that carries on a trade that consists of or includes the management of “relevant UCITS” (which is separately defined – see below), whether they are in the form of unit trusts, common contractual funds or investment companies.

The definition of “authorised agent” was further expanded with effect from 1 January 2016 to include Alternative Investment Fund Managers (AIFMs) which are:

  • Irish authorised AIFMs, or
  • an Irish branch or agency of an AIFM authorised under the laws of an EEA state.

(2)(a) & (b) For an authorised agent to be independent in relation to a non-resident person carrying on a financial trade in the State through the agent, the agent —

  • must act in the ordinary course of the agent’s business and in an independent capacity; in other words, the commercial relationship between the agent and the non-resident person must be as it would be between persons doing business at arm’s length;
  • must have a limited economic involvement in the trade of the non-resident; and
  • must not otherwise act for the non-resident person.

(2)(c), (4) & (5) The limit to the economic involvement that the agent can have in the trade of the non-resident requires that the aggregate amount of the profits or gains of the financial trade of the non-resident to which the agent and resident connected persons of the agent can have beneficial entitlement is limited to 20%. This limit can be breached if the Revenue Commissioners, or an officer nominated by them for that purpose, are satisfied that the breach is of a temporary nature only. Fees paid to the agent for services rendered to the non-resident, whether or not such fees are based on the profitability of the non-resident’s trade, are not to be taken into account for this purpose.

(3) A non-resident person carrying on a financial trade in the State solely through an authorised agent who satisfies the independence conditions is not liable to income tax in respect of that trade. This exemption, by virtue of section 1040, also extends to corporation tax.

Relevant Date: Finance Act 2021