Ireland’s recently enacted Finance Act 2012 introduces some welcome measures for the Irish investment funds industry.  The improvements focus on facilitating the inbound (and outbound) cross-border mergers of funds, with a view particularly to UCITS IV, together with specific reliefs for both the amalgamation of funds and the switching of units in foreign funds.  The main improvements from an international perspective are described below.

Inbound cross-border mergers and migrations

The Act introduces a number of measures which will enhance investment funds’ ability to migrate into Ireland or merge with Irish funds.

  • Inward migrations Irish funds generally need to obtain a declaration from non-Irish investors confirming that they are resident outside Ireland.  However, the Act puts on a legislative footing an administrative practice that permits funds which migrate into Ireland to dispense with this requirement for their existing investors, once the fund itself makes a straightforward declaration to the Irish tax authorities that, to the best of its knowledge, none of the investors are resident in Ireland.  This is a helpful measure in reducing the administrative requirements of migrating funds to Ireland.
  • Inward mergers The Irish tax regime facilitates schemes of migration and amalgamation under which foreign funds transfer their assets to Irish funds in exchange for the issue of new units by the Irish fund.  Previously, those new units needed to be issued to the investors themselves to qualify for the regime.  The Act now extends the regime to permit those new units be issued to the foreign fund itself (instead of to the investors), giving more flexibility to investors and managers in arranging inward mergers.
  • Inward mergers and Irish investors  The advent of UCITS IV has also been recognised by facilitating Irish investors who hold units in EU regulated funds (and funds domiciled in other specified onshore territories) to participate - on a tax neutral basis - in inbound mergers under which foreign funds transfer their assets to Irish funds in return for the issue of new units to the Irish investors.  This ensures that Irish investors are treated in the same way whether mergers takes place between two Irish funds or between an Irish fund and a qualifying foreign fund.  The relief is not restricted to UCITS funds but extends to all EU regulated funds and other qualifying funds which are equivalent to Irish regulated funds.  

Outbound cross-border mergers

The Act has introduced two provisions to assist with outbound cross-border mergers:

  • Outward mergers and Irish investors  The Act facilitates outbound mergers under which Irish funds merge into EU domiciled funds (or funds in other specified onshore territories).  The relief applies where an Irish fund transfers its assets to the foreign fund in exchange for the foreign fund issuing units to the investors, and ensures that no Irish taxable event arises on this merger.  Again, this ensures that Irish investors are not disadvantaged if their fund is merged into another EU fund, instead of another Irish fund.
  • Outbound mergers and stamp duty  An express exemption from stamp duty has also been included to address outbound mergers, where an Irish fund transfers assets to a foreign fund in return for the issue of units to the investors (or to the Irish fund itself).  

Amalgamations of EU funds

The Irish tax regime already provides relief for Irish investors on the amalgamation of EU regulated funds.  The Act now expressly confirms that no stamp duty will arise on such amalgamations (though, in most circumstances, it is unlikely that a charge to stamp duty would arise in any event).

New reporting obligations

Finally, the Act introduces a new reporting obligation requiring Irish funds to report certain information to the Irish tax authorities.  The categories of information include the identity and place of residence of unitholders, the value of units (but not the amount of payments) and any Irish tax reference numbers of unitholders.  No such reporting is required with respect to common contractual funds or information reported under the EU savings directive.  The reporting requirement will come into force on the passing of regulations.  No regulations have been issued yet but are anticipated in the near future.

Welcome Improvements

This year’s Finance Act can be fairly described as providing for a number of welcome technical improvements to the Irish tax regime for investment funds.  These measures will help Ireland continue to offer the leading regulatory and tax environment in which to establish and develop investment fund businesses.