I OVERVIEW OF RECENT ACTIVITY

Ireland retained its status as the fastest-growing economy in the EU in 2015, with GDP rising to a post-2008 high of 6.9 per cent. This was over three and a half times the average rate of growth of 1.9 per cent recorded throughout the EU in 2015. One of the main initiatives of the government to sustain Ireland’s continued growth was the launch of the International Financial Services Strategy for 2020 (IFS2020) in 2015. IFS2020 sets out a clear and ambitious plan for the development of Ireland’s international financial services sector over the five-year period to 2020.

Clearly one very significant event that has occurred since IFS2020 has been Brexit. At the time of writing, it was too early for anyone to determine the exact impact of Brexit assuming the UK exercises the Article 50 mechanism to exit the EU. It may be that Brexit will have little impact for Ireland’s financial services industry if the UK negotiates similar passporting rights as exist today across various parts of its financial services industry (such as under MiFID and the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) for UK investment firms) and obtains a passport across the EU for its investment funds. Equally, the UK may not be able to retain or negotiate such passporting rights, in which case Ireland should be well-positioned to offer an EU solution for UK-based financial services firms.

II GENERAL INTRODUCTION TO the REGULATORY FRAMEWORK

The Central Bank of Ireland (Central Bank) is responsible for the authorisation and supervision of regulated financial service providers in Ireland, including regulated investment funds, investment managers, and insurance and reinsurance undertakings. The powers delegated to the Central Bank are set out in the laws and regulations applicable to the relevant financial services sector. In addition, the Central Bank issues guidance in relation to various aspects of the authorisation and ongoing requirements applicable to financial service providers. In general terms, the Central Bank expects that best practice is adopted by the authorised entity and requires that financial services providers have systems, procedures and policies in place to ensure that regulatory requirements are met and to mitigate risk.

The regulation of pension schemes is a matter for the Pensions Authority, the statutory body for the pensions industry in Ireland.2

III COMMON ASSET MANAGEMENT STRUCTURES

Ireland as a domicile provides a variety of potential asset management structures (structures), which can be broadly categorised as regulated by the Central Bank or unregulated.

i Regulated structures

There are four main types of regulated fund structure in Ireland: Irish collective asset management vehicles, variable capital investment companies, unit trusts and common contractual funds. Each of these regulated fund structures may be established as UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended (UCITS Regulations)3 or as an alternative investment fund (AIF) pursuant to the EU (Alternative Investment Fund Managers) Regulations 2013 (AIFM Regulations).4

A regulated investment limited partnership (established pursuant to the Investment Limited Partnership Act 1994) is also available as a structure for AIFs (see Section VI.iii, infra). Investment limited partnerships have also benefited from a tax change in 2013 (see Section VI.ii, infra).

These structures may be organised in the form of umbrella schemes with segregated liability between compartments (sub-funds).

Irish collective asset management vehicles (ICAVs)

An ICAV is an Irish corporate investment fund vehicle that has been specifically tailored to the needs of the global funds industry. The Irish Collective Asset-management Vehicle (ICAV) Act 2015 (ICAV Act) came into effect on 12 March 2015, and since that date it has proven to be the most popular structure for new funds established in Ireland. One of the main reasons for the popularity of the ICAV is that, unlike investment companies established in Ireland as public limited companies, an ICAV that is structured as an umbrella fund is only required to produce financial accounts at a sub-fund level while a public limited company must produce financial accounts at the umbrella level (resulting in investors in a sub-fund receiving financial accounts for all of the sub-funds in the umbrella). In addition, there is no requirement for an ICAV to hold an annual general meeting of shareholders, and non-material changes can be made to the ICAV’s by-laws without shareholder approval. In addition, the ICAV may be eligible to elect to be treated as a transparent entity for US federal income tax purposes, unlike an investment company established as a public limited company, which is not eligible to make such an election.5

Variable capital investment companies

A variable capital investment company must be incorporated as a public limited company pursuant to the Irish Companies Acts. The day-to-day management and control of the investment company are undertaken by a board of directors (although this can be delegated to a management company), with ultimate control resting with the shareholders. Provided that this day-to-day management and control of the investment company take place in Ireland, an investment company can obtain a certificate of Irish tax residency from the Irish tax authorities and is not liable for Irish tax on its income or gains.

Unit trusts

A unit trust is a contractual arrangement constituted by a trust deed entered into between an Irish management company and a trustee. The assets of the trust are held by the trustee, but the beneficial ownership of the assets remains with the unit trust’s unitholders. Unlike an investment company or ICAV, a unit trust does not have a separate legal personality, and contracts in relation to the trust are entered into by the management company on behalf of the trust, or a particular sub-fund of the trust, as provided for in the trust deed.

Common contractual funds

The common contractual fund (CCF) is a tax-transparent structure first established in Ireland in 2003. It was specifically developed to facilitate the pooling of pension fund assets in a tax-efficient manner.

The CCF is an unincorporated body established by an Irish management company pursuant to which the investors participate and share in the property of the CCF as co-owners. As a co-owner, each investor in a CCF is deemed to hold an undivided co-ownership interest as a tenant in common with other investors. CCFs are constituted under contract law by the execution of a deed of constitution between a management company and a depositary. As an unincorporated body, a CCF does not have separate legal personality.

ii Unregulated structures – limited partnerships

The limited partnership established pursuant to the Limited Partnership Act, 1907 is the favoured structure for unregulated investment funds in Ireland.

A limited partnership is a partnership between one or more general partners and one or more limited partners, and is constituted by a partnership agreement. To have the benefit of limited liability, the limited partners are not permitted to engage in the management of the business of the partnership or to contractually bind the partnership – these functions are carried out by the general partner. There is a general limit of 20 partners in a limited partnership, although this limit can be raised to 50 where the limited partnership is formed ‘for the purpose of, and whose main business consists of, the provision of investment and loan finance and ancillary facilities and services to persons engaged in industrial or commercial activities’.6

iii Liquidity

Fund structures regulated by the Central Bank may be open-ended, closed-ended or have limited liquidity. One exception is where the regulated structure is authorised by the Central Bank pursuant to the UCITS Regulations, in which case the structure is required to be open-ended with at least two redemption dates per month.

Closed-ended schemes are generally subject to the Prospectus Directive7 unless otherwise exempted (qualifying investor alternative investment funds (see below) are generally able to avail of an exemption). In addition, closed-ended schemes may, in certain circumstances, be subject to other European regulations (e.g., the Transparency Directive8 and Takeovers Directive9).

IV MAIN SOURCES OF INVESTMENT

i Regulated investment funds

Ireland’s success as an onshore domicile for investment funds is well known and continues to be an area of strategic importance for the Irish economy.

Statistics for the year ended 31 December 2015 show that Irish-domiciled investment funds had over €1.89 trillion in net assets. This represents a 14 per cent increase in asset growth during 2015, and follows on from a very strong 2014 that saw assets grow by 24 per cent. While the majority of assets under management are held in UCITS funds, Irish-domiciled AIFs had in excess of €451 billion in net assets at the end of 2015.10 The majority of the investment in these regulated investment funds comes from non-Irish institutional investors.

ii Insurance and reinsurance

As at 21 July 2016, there were 45 life insurers, 89 non-life insurers (including captives) and 74 reinsurers (including captives and special purpose reinsurance vehicles) with head offices in Ireland. There were a further 11 life insurers and 32 non-life insurers with branches in Ireland. In addition, 175 life insurers and 783 non-life insurers operate in Ireland on a freedom of services basis pursuant to the relevant EU Directives.11 In its Fact File 2014 publication, Insurance Ireland indicated that life insurance policyholder funds managed by its members amounted to €96 billion in 2014. Of this, 50.4 per cent was invested in equities, 30.8 per cent in gilts, 4 per cent in property, 8.9 per cent in cash and 5.8 per cent in other asset classes.12

iii Pension schemes

The Irish Association of Pension Funds estimates the total assets of Irish pension funds now exceeds €107 billion, but no precise details are available on how these assets are invested or what proportion of assets are under the management of Irish authorised investment managers. In its defined benefit scheme review, which is based on the Annual Actuarial Data Return submitted to the Authority by 31 March 2016, the Pensions Authority indicates that asset allocation of the 666 active and frozen defined benefit schemes in Ireland (with assets of just over €60 billion) is as follows: 35.8 per cent in equities, 34.4 per cent in EU sovereign bonds, 7.4 per cent in other bonds, 4.4 per cent in property, 2.3 per cent in cash, 0.2 per cent in net current assets, 0.1 per cent in with profit insurance policies and 15.4 per cent in ‘other’ (which includes absolute return funds, alternative assets, hedge funds, commodities, derivatives, global absolute return strategies and annuities).

V KEY TRENDS

In terms of insurance and reinsurance, Ireland has been very successful in convincing some significant international insurance businesses to locate their headquarters to Ireland. The Solvency II Directive has forced insurers and reinsurers established outside the EU to assess whether to redomicile their global operations in a European centre such as Ireland. Ireland continues to be one of the most sought-after European domiciles for insurers and reinsurers looking to redomicile.

On the investment funds side, with the continued developments of new products in response to promoter demand, an established fund structure that is compliant with AIFMD and the opportunities which arise in the context of Brexit, Ireland’s recent success in attracting record levels of assets into Irish-domiciled investment funds is likely to continue. As indicated in Section I, supra, Ireland is well positioned to attract UK based investment firms and investment funds seeking a place of establishment within the EU post-Brexit.

VI SECTORAL REGULATION

i Insurance

Ireland has a long-established legal framework for insurance and reinsurance business, primarily composed of the Assurance Companies Act 1909, the Insurance Acts 1936–2011 various European Directives and now the Solvency II Directive.13

Insurers and reinsurers must limit their activities to those for which they are specifically authorised, to the exclusion of all other business activity. The Central Bank imposes strict rules on insurers and reinsurers to formalise appropriate internal policies and procedures to ensure that investment risks relating to assets used for regulated capital purposes are adequately managed. The rules in relation to asset management activity by insurance undertakings are governed by the rules set out in the Solvency II Directive, which was implemented in Ireland by the Irish Implementing Regulations.14 Solvency II came into effect in Ireland on 1 January 2016.

Solvency II codifies and harmonises EU insurance regulation and sets new standards for the amount of capital that insurance and re-insurance firms must hold based on their risk profile, as well as new standards for governance, risk management and supervision, and reporting and transparency. The implementation of Solvency II is a significant challenge for asset managers as they will need to provide insurance clients with greater levels of detail in relation to the assets underlying their investments. The implementation of the Solvency II Directive is the most substantial regulatory change affecting Irish and European insurers and reinsurers in many years, as it provides for a new risk-based capital adequacy regime.

Solvency II involves significant changes for asset management by insurers and reinsurers. Solvency II has introduced, for the first time, across EEA Member States a solvency calculation based on an economic and prospective approach to the risks inherent to the business conducted by insurers and reinsurers. As a result, one of the key factors in the calculation of an insurer’s regulatory capital requirements will include market risk. Therefore, under Solvency II, insurers and reinsurers will be able to invest in any asset (in the interests of policyholders and beneficiaries), including high-risk and volatile assets, provided they are willing to hold the necessary extra capital for such risk.

New provisions in relation to asset allocation may affect which funds insurers choose to invest in because of the new prescribed methods for the valuation of assets and liabilities. Solvency II requires that insurers diversify their asset portfolios, which will affect insurer’s choices in investment funds. Asset managers should be aware of the different capital charges that are applied to assets and liabilities. Of particular interest is the market risk module, which is split into the following sub-modules: interest rate risk, equity risk, property risk, spread risk, market risk concentrations and currency risk. Different categories of assets and liabilities will be subject to different rules depending on how they are classified. For example, infrastructure debt and equity investments are subject to favourable capital charges.

Insurers must have processes in place to ensure the appropriateness, accuracy and completeness of the data that they use to calculate their capital requirements. In order to comply with this requirement, insurers are likely to demand assurances from asset managers that the data they have received meets these standards and that there are appropriate governance and control procedures in place to ensure these standards are met. Under Solvency II, there must be a higher level of transparency in the funds in which insurers invest. This includes complying with the ‘look-through’ approach, which states that insurers must base their risk assessment of a fund based on the assets that underlie the fund. Asset managers of funds will be obliged to provide details of these underlying assets to insurers or risk losing insurer’s business.

As a result of Solvency II, insurers will look to have closer relationships with their asset managers due to the increased pressure to provide detailed data within tight time frames. Asset managers will want to ensure that they have product strategies that reflect the requirements of Solvency II in relation to asset allocation, in order to ensure that their portfolios remain attractive to insurers.

ii Pensions

The trustees of a pension scheme are constrained in the investment choices they may make by the governing documents of the scheme (or, if no investment powers are contained in the pensions scheme, by the Trustee Act, 1893 and the associated Trustee (Authorised Investment) Orders), and by statute). The Pensions Acts 1990–2015 imposes a duty on the trustees of pension schemes to provide for the proper investment of the resources of the scheme.

In general, the trustees of a pension scheme will be given the power to appoint an investment manager under the scheme’s governing documents. An investment manager appointed to pension scheme assets will be bound by any restrictions on investment in the scheme’s governing documents and by the relevant statutory restrictions. These restrictions will generally be referred to in the investment management agreement. Ultimately, the trustees cannot delegate their primary responsibility to invest, and the trustees remain under a continuing obligation to supervise the investment manager.

Irish pension schemes must comply with the Pensions Directive,15 which established a common basis for the operation and supervision of pension funds in EU Member States. The main requirements of the Pensions Directive are reproduced in the Investment Regulations.16 The Pensions Directive also requires trustees to invest in accordance with the prudent-person rule and to invest assets in the interests of beneficiaries.

The Investment Regulations require that the assets of the scheme must:

  • a be invested in a manner designed to ensure ‘the security, quality, liquidity and profitability of the portfolio as a whole so far as is appropriate having regard to the nature and duration of the expected liabilities of the scheme’;
  • b be invested predominantly on regulated markets as defined in the Investment Regulations;
  • c be properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings and so as to avoid accumulations of risk in the portfolio as a whole; and
  • d not be invested in derivative instruments except insofar as they contribute to a reduction of investment risks or facilitate efficient portfolio management.

The Investment Regulations also require that:

  • a the trustees of a scheme (other than a one-person scheme) may not borrow money except for liquidity purposes and on a temporary basis; and
  • b investment in the sponsoring employer of the pension scheme (which is viewed as self-investment) shall not exceed 5 per cent, and total self-investment in the sponsoring employer group shall not exceed 10 per cent of the resources of the scheme. An exception is provided in respect of small member-controlled schemes where the investment restriction is raised to 20 per cent.
Recent developments in pensions asset management

The European Market Infrastructure Regulation (EMIR),17 which entered into force on 16 August 2012, seeks to ensure greater transparency in the financial system by, inter alia, regulating transactions in over-the-counter derivatives (OTCs) in the European Union. Pension schemes that use OTCs fall within the scope of EMIR, albeit with some exemptions from the full force of the regulation, and the trustees of a pension scheme are responsible for compliance with EMIR. Under EMIR, pension schemes are classified as ‘financial counterparties’ along with financial institutions (such as banks, hedge funds and custodians), but pension funds have been exempted from compliance with some aspects of EMIR for a period of time.

From 12 February 2014, financial counterparties, including trustees of pension funds, will have to report any new OTCs that they enter into with the trade repository within one business day of entering the contract. Any amendments to the terms of OTC transactions and any early terminations of OTC transactions must also be reported from 12 February 2014 onwards. Any OTC transactions that were entered into on or after 16 August 2012 and which remained outstanding on 12 February 2014 also had to be reported on 12 February 2014. All counterparties to a transaction, including the trustees of pension funds, must maintain a record of concluded or modified OTC transactions for at least five years after they have been concluded or modified. Pension funds were granted an exemption from the EMIR clearing requirements for certain OTC trades. In June 2015, the European Council agreed to extend the pension fund exemption until 15 August 2017.

As regards potential future developments, a revised version of a new IORP directive (IORP II) has been formally approved by the EU’s Permanent Committee of Member States Representatives. It is expected that the directive will be approved by the European Parliament later this year, following which the Council of the EU will formally adopt the directive and it will come into force 20 days after its publication in the Official Journal. Member States will then have 24 months to transpose it into national law. The revised directive does not include harmonised solvency rules, and although the requirement for cross-border schemes to be fully funded at all times has been retained, the directive acknowledges the possibility that this may not be the case and requires the relevant national regulatory authority to intervene to require the IORP to implement appropriate measures to ensure members are ‘adequately protected’.

iii Hedge funds

Regulated investment fund structures in Ireland may be established as UCITS (authorised by the Central Bank pursuant to the UCITS Regulations) or AIFs (authorised by the Central Bank pursuant to the AIFM Regulations that implement the AIFMD).

UCITS are subject to various liquidity constraints, investment restrictions (both in terms of permitted investments and required diversification), borrowing and leverage limits. The UCITS III Product Directive18 and the Eligible Assets Directive19 significantly increased the range of permissible investments for UCITS, which enabled hedge fund managers to adapt their investment approach to the UCITS model, giving the market access to liquid alternative UCITS funds. However, UCITS are subject to various leverage and counterparty exposure restrictions, and may not appoint prime brokers to rehypothecate fund assets. UCITS can be marketed publicly across the EU subject to limited registration requirements. In addition, institutional investors and pension funds are often able to invest a higher percentage of their assets to UCITS than to unregulated funds or even regulated non-UCITS funds.

AIFs are regulated by the Central Bank pursuant to the AIFMD Regulations, which are supplemented by the Central Bank’s AIF Rulebook.20 The AIFMD Regulations implement the AIFMD into Irish law.21

An AIF is defined as ‘any collective investment undertaking [...] which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors’ and that does not require an authorisation under the UCITS Directive. Therefore, AIFs encompass all non-UCITS funds, not just hedge funds, commonly considered to be alternative funds. Whether a particular AIFM is within the scope of the AIFMD depends on its location and that of the AIFs it manages, as well as the countries into which the AIFs are marketed.

In summary, the AIFMD applies to:

  • a all EU AIFMs that manage one or more EU or non-EU AIFs;
  • b all non-EU AIFMs that manage one or more EU AIFs; and
  • c all non-EU AIFMs that market one or more EU or non-EU AIFs in the EU.

The AIFM can be either an external manager of the AIF or, where the legal form of the AIF permits internal management (for example, the Irish variable capital investment company and ICAV) and the AIF chooses not to appoint an external AIFM, the AIF. This has particular significance when one considers that an authorised AIFM may delegate the portfolio or risk management function to entities that themselves are not required to be authorised AIFMs. Accordingly, if an internally managed AIF were authorised as an AIFM and were permitted to delegate this function to a non-EU manager, that manager would not have to be authorised as an AIFM under the AIFMD. This point is of particular importance, as it is a means by which non-EU managers can access European markets without having to become authorised as AIFMs.

iv Private equity and real property

The AIF Rulebook specifically provides for the establishment of real estate and private equity retail investor AIFs (RIAIFs) and qualifying investor AIFs (QIAIFs). The QIAIF continues to be an extremely popular regulated fund structure.

A key element in the development of private equity funds and real estate funds as QIAIFs has been the use of special purpose vehicles to gain access to Ireland’s extensive double taxation treaty network. QIAIFs are permitted to establish multilayered special purpose vehicles, typically wholly-owned subsidiaries established pursuant to Section 110 of the Taxes Consolidation Act 1997. The Section 110 subsidiary can therefore be used as the investment vehicle for the QIAIF, which in turn effectively allows the QIAIF to gain access to Ireland’s double taxation treaty network.

The Finance Act 2013 provides for the establishment of real estate investment trusts (REITs) in Ireland. Irish REITs must be incorporated under the Irish Companies Acts, be resident in Ireland, have their shares listed on the main market of a recognised stock exchange, and meet a number of conditions and restrictions in terms of borrowing, permitted investments, sources of income and risk spreading. Although the Central Bank has not determined that all REITs established in Ireland are AIFs for the purpose of the AIFMD, it has indicated that the onus would be on the REIT to demonstrate otherwise. Furthermore, it has advised that REITs that are structured as unauthorised AIFs must comply with the Central Bank AIF Rulebook for retail alternative investment funds.

Recent developments
Loan distribution funds

The Central Bank’s rules for loan origination funds are set forth in a dedicated chapter of the Central Bank’s AIF Rulebook on loan origination QIAIFs (LO-QIAIFS), which represents the first dedicated regulatory regime in the EU for loan origination funds. AIFMs that meet the additional conditions relating to LO-QIAIFSs will be able to manage the new LO-QIAIF and market it within the EU using the AIFMD passport. The additional conditions applicable to LO-QIAIFs include the requirement that the LO-QIAIF:

  • a be closed-ended;
  • b must not have gross assets of more than 200 per cent of its net asset value;
  • c must achieve a diversification of its exposures to any one issuer or group to 25 per cent of its assets within a time frame specified in its prospectus;
  • d does not lend to certain categories of borrower; and
  • e that certain ‘skin in the game’ is maintained in respect of loans acquired from a bank under arrangements that involve the retention by the bank or an affiliate of an exposure correlated with the performance of the loan.
EU long-term investment funds

The EU Regulation on long-term investment funds (ELTIF) came into force on 9 December 2015 and was implemented into Irish law by the EU (European Long-term Investment Funds) Regulations (ELTIF Regulations). The ELTIF is a new type of regulated investment fund that invests in long-term investment opportunities and may be marketed to both professional and retail investors across the EU. ELTIFs have been designed with the intention of increasing the level of long-term investment in the European economy by facilitating investment in asset classes that are too illiquid to be served by existing fund structures. An ELTIF must be an EU AIF and must be authorised by the regulator in its home jurisdiction (the Central Bank having been designated as the competent authority in Ireland). Further, an ELTIF may only be managed by an EU AIFM. ELTIF managers will therefore be required to comply with the requirements under AIFMD as well as the ELTIF Regulations. The ability to market an ELTIF on a passported basis to retail investors across the EU is a significant advantage over other types of AIFs. However, as the ELTIF is subject to significant limitations in terms of the types of assets that it may invest in and the diversification limits that apply it will be interesting to see whether the potential benefits from a marketing perspective are considered by managers to be worth the additional investment constraints and compliance burdens.

VII TAX LAW

i Irish investment undertakings and non-Irish resident investors

Where an Irish authorised fund qualifies as an investment undertaking for Irish tax purposes, it is generally not chargeable to Irish tax on its income and gains.22 However, the fund may be required to account for Irish tax (known as investment undertaking tax or exit tax) on the occurrence of a chargeable event in respect of its investors. In practice, this charge is limited to payments in respect of certain Irish-resident taxable investors.

A chargeable event includes payments of any form made by a fund to an investor and on the transfer or sale of units in the fund. An investor is also deemed for Irish tax purposes to dispose of its holding in an Irish fund every eight years (deemed a chargeable event), giving rise to a rolling eight-year tax charge until such time as the holding is disposed of. If the fund becomes liable to account for exit tax on a chargeable event, it is entitled to deduct an amount equal to the appropriate tax (currently 41 per cent) from the relevant payment and, where applicable, to repurchase and cancel such number of units held by the investor as is required to satisfy the amount of tax. Importantly, however, no Irish tax arises in respect of a chargeable event where the investor is neither resident nor ordinarily resident in Ireland, or an exempt Irish resident such as another Irish authorised fund, a Section 110 company, a pension fund or a charity. In each case, the fund must be in possession of an appropriate declaration confirming the status of the investor, although the requirement for declarations in respect of non-resident investors may be relaxed on application by the fund to the Irish Revenue where certain conditions are met.

Non-Irish resident investors are thus generally not liable to Irish exit tax by deduction by the fund or on assessment in respect of their investment in Irish authorised funds. The one exception is where a non-resident investor has a branch or agency in Ireland, and invests in an Irish fund through or in connection with the branch or agency. Although no Irish tax will be accounted for by the fund, the investor will be liable to Irish corporation tax in respect of income and capital distributions it receives from the fund.

ii Investment limited partnerships

Investment limited partnerships authorised by the Central Bank after 13 February 2013 are no longer deemed investment undertakings under Irish tax law, and are not therefore subject to the exit tax rules that apply under the investment undertaking tax regime. Subject to certain reporting requirements, investment limited partnerships authorised after 13 February 2013 are tax-transparent, consistent with the tax treatment of investment limited partnerships internationally.

iii CCFs

A separate regime applies to Irish authorised CCFs, being funds that permit pension assets to be pooled in a tax-transparent structure.23 A CCF is treated as tax-transparent for Irish tax purposes provided the unitholders are institutional investors and certain reporting requirements are met. As a consequence, a CCF can facilitate pooling while ensuring that the double taxation treaty benefits normally enjoyed by pension funds are not affected by investing through a CCF.

iv Taxation of investment managers

An Irish resident investment manager would normally be taxed on its trading profits at the corporation tax trading rate of 12.5 per cent. Ireland’s low corporation tax rate on trading profits compares favourably with corporation tax rates in other EU and OECD countries. Management services provided by an investment manager to an authorised fund are generally exempt from VAT. In addition, the use of an Irish investment manager by a foreign UCITS will not of itself bring the foreign UCITS within the charge to Irish tax where certain conditions are met.24

v Private equity

Private equity investors that choose not to invest through an Irish authorised fund could invest through a standard Irish company, in which case profits would be taxed at either 12.5 or 25 per cent. Tax neutrality at the entity level could be achieved, if appropriately structured, by the use of a company qualifying for the Irish Section 110 regime or a tax-transparent partnership or limited partnership to invest.

vi REITs

REITs offer a modern collective ownership structure for Irish and international investors in real property. Provided that various conditions as to diversification, leverage restrictions and income distributions are met, an Irish REIT is exempt from Irish corporation tax on income and gains arising from its property rental business. Investors in a REIT are liable to Irish tax on distributions from the REIT. In the case of non-Irish resident investors, income distributions from the REIT are subject to dividend withholding tax (currently 20 per cent), although certain non-residents may be entitled to recover some of the tax withheld or otherwise should be entitled to claim credit against taxes in their home jurisdictions. Non-resident pension funds may also be eligible for exemption.

vii Recent developments

The introduction of a new regulated vehicle in Ireland, the ICAV is a welcome development to expand the attractiveness of Ireland’s authorised fund offering. Unlike the preceding Irish corporate regulated fund, the variable capital investment company, the ICAV as a private limited company allows US taxable investors to treat the fund as a ‘check-the-box’ vehicle for US tax purposes. In so doing, the ICAV may avoid certain adverse tax consequences for US taxable investors who invest in structures that may be deemed as a passive foreign investment company for US federal income tax purposes.

Ireland became one of the first countries to enter into an intergovernmental agreement (IGA) with the United States with respect to FATCA25 in December 2012. Under the IGA, FATCA compliance will be enforced under Irish tax legislation, including the Financial Accounts Reporting (United States of America) Regulations 2014, and reporting rules and practices. Subject to certain exceptions, Irish authorised funds are generally reporting financial institutions for FATCA purposes, and are subject to FATCA due diligence and reporting requirements made in June 2014. Irish financial institutions that are within scope are required to register and obtain a global intermediary identification number in order to avoid 30 per cent withholding on their US-sourced income and proceeds from the sale of certain US income-producing assets. The Irish Revenue Commissioners will receive similar information from the IRS regarding Irish taxpayers.

VIII OUTLOOK

The government remains committed to the development of Ireland as a global and European asset management centre. This is reflected in the launch of IFS2020, as discussed earlier in the chapter. With this commitment, each of the individual arms of Ireland’s asset management industry can continue to expect the full support of the government to introduce whatever changes are required from a regulatory, product and tax perspective to ensure that the asset management sector is a key driver of the Irish economy and the continued recovery of the Irish economy. It is this support that should ensure that the outlook for Ireland’s asset management industry continues to be very positive, particularly if Ireland can harness the significant opportunities that may arise post-Brexit and become the domicile of choice for UK investment firms and investment funds seeking a base of operations within the EU.

Footnotes

1 Kevin Murphy and Elizabeth Bothwell are partners, and David O’Shea, David Kilty and Sarah McCague are senior associates at Arthur Cox.

2 Established under the Pensions Act 1990 (as amended).

3 The UCITS Regulations implement the UCITS Directive in Ireland.

4 The AIFM Regulations implement AIFMD in Ireland.

5 For further information on this point, see Section VII.vii, infra.

6 Companies (Amendment) Act 1982 (Section 13(2)) Order 2004.

7 Directive 2003/71/EC of the European Parliament and the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC.

8 Directive 2004/109/EC of the European Parliament and of the Council of 15 December
2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, as amended by Directive 2013/50/EU.

9 Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids.

10 Irish Funds Industry Association Statistics – year end 2015.

11 Central Bank of Ireland industry registers.

12 Insurance Ireland Fact File 2014 – published 13 October 2015.

13 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and the Reinsurance (Solvency II).

14 European Union (Insurance And Reinsurance) Regulations 2015.

15 The Occupational Pensions Directive 2003/41/EC.

16 The Investment Occupational Pension Schemes (Investment) Regulations 2006.

17 Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

18 Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002
amending Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), with regard to investment in UCITS.

19 Commission Directive 2007/110/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards clarification of certain definitions.

20 AIF Rulebook, November 2015 (current edition).

21 The AIFMD is the European legislation that governs managers of AIFs (AIFMs), and in the first instance requires that all AIFMs be appropriately authorised to manage AIFs that are established or marketed in the EU.

22 Section 739B of the Taxes Consolidation Act 1997 (TCA) applying in respect of Irish authorised funds established on or after 1 April 2000, and certain pre-31 March 2000 IFSC funds.

23 Section 739I of the TCA.

24 Section 1035A of the TCA.

25 The Foreign Account Tax Compliance Act (FATCA) provisions of the US Hiring Incentives to Restore Employment Act 2010.