Taxation measures impacting the funds sector announced in Budget 2015 have been clarified following the publication of Finance Bill 2015 on 22 October 2015.
Exemption of vouched expenses for certain non-resident directors (s.6)
There is a new exemption from Irish income tax and USC for the reimbursement of vouched travel and subsistence expenses incurred by certain non-resident directors attending “relevant meetings” i.e. meetings attended in their capacity as director. The exemption only applies to a director who does not devote a substantial amount of his/her time to the services of a company in a managerial or technical capacity. This would typically cover non-executive directors (NEDs).
The exemption will take effect from the enactment of the Bill which is expected in late December and, as it stands, does not apply retrospectively. However, given the uncertainty on this issue that has prevailed since last year, it is hoped that the provision may be given retrospective effect before the Bill is passed.
While the measure is broadly welcome, particularly by the FDI sector, it does leave Irish resident directors at a disadvantage. For example, Irish resident NEDS would be taxable on expenses incurred while travelling to directors' meetings in Ireland whereas a non-resident NED, travelling from abroad, would not be taxable. This anomaly will hopefully be addressed as the Bill progresses through the legislative process.
Change to definition of “Collective Investment Undertaking” to remove uncertainty on availability of US Ireland double tax treaty benefits (s.24)
The definition of “collective investment undertaking” is to be amended to include an ICAV. Although this definition refers to investment funds established prior to the introduction of the gross roll-up regime for investment funds on 1 April 2000, the definition continues to have relevance to all regulated funds, including those established after 1 April 2000, in the context of the double tax treaty between Ireland and the USA.
The aim of this amendment is to remove any uncertainty or ambiguity about the application of the US Ireland double tax agreement to an ICAV.
Clarification on tax treatment of non-resident AIFs which have Irish AIFMs (s.26)
An amendment has been made to clarify the tax treatment applicable to non-resident AIFs which have an Irish tax resident AIFM. The purpose of the amendment is to provide that a non-resident AIF will not be viewed as having a taxable presence in Ireland solely as a result of the fund being managed by an authorised independent Irish tax resident AIFM.
This is an important measure to ensure unexpected tax costs do not make Ireland an unattractive location to manage non-Irish AIFs. There was some uncertainty surrounding this issue so it is helpful that the position has been clarified.
Capital gains tax deferrals on transfer of assets to an ICAV (S.37)
There is normally a deferral of Capital Gains Tax (CGT) when assets are transferred between companies in the course of a reconstruction or amalgamation, or between two group companies. Since 2008, this treatment has not been available where the assets are transferred to an investment company which is subject to “gross roll-up” Irish tax treatment. As the ICAV is subject to “gross roll-up” treatment, the Bill seeks to prevent the deferral of CGT on the transfer of assets to an ICAV in the course of a reconstruction or amalgamation, or from a group company.
This change has been introduced to bring the tax treatment on the transfer of assets to an ICAV in line with the tax treatment applying to transfers to other types of funds.