The Finance Act 2013 includes proposed measures to alter the tax treatment of Investment Limited Partnerships in Ireland. ILPs authorised by the Central Bank after 13 February 2013 will no longer be deemed an investment undertaking under tax law.
ILPs are collective investment schemes authorised by the Central Bank of Ireland under the Investment Limited Partnership Act 1994 (the "Act"). Limited Partnerships are a very popular structure internationally, particularly in the U.S. The Finance Act 2013 alters how ILPs are taxed. The proposed changes to the ILP framework are no doubt being considered in the context of other changes to the Irish funds sector which are underway at present on foot of the Alternative Investment Fund Managers Directive (“AIFMD”).
The proposals will seek to ensure that ILPs are tax transparent vehicles. ILPs authorised by the Central Bank after 13 February 2013 will no longer be deemed an investment undertaking under tax law. Instead of tax being charged to the partnership itself, tax would now be imposed on the relevant income and gains of partners in an ILP in proportion to the value of their investment. This would have the effect of removing a layer of taxation that previously applied, with the result being that ILPs will be “tax transparent”.
The previous advantages associated with ILPs such as exemptions from stamp duty, capital acquisition tax and withholding tax would still apply.
In order for an ILP to avail of the tax transparency provisions, there will be a requirement to file an annual return with the Revenue Commissioners before 28 February every year. This annual return will need to contain the following information:
- The total amount of relevant profits of each partner in the ILP;
- Details on each partner of the ILP including:
- The partner’s name and address;
- The amount of profits that partner is entitled to; and
- Other information the Revenue Commissioners may require.
The previous tax treatment of ILPs under Irish law was inconsistent with the position internationally and is almost certainly one of the factors which contributed to the low uptake of ILPs from 1994 to date. As of 31 January 2013, there were only five ILPs authorised by the Central Bank.
It is hoped that the changes to the tax structure of the ILP, once implemented, will be viewed positively by the international financial community and in particular by investment managers and promoters located outside of the EU looking to set up a European base. By making ILPs tax transparent they become a real option for private equity and real estate fund promoters.
The proposals are to be welcomed and are further evidence of Ireland's commitment to a developing a dynamic well regulated financial services industry which provides a comprehensive suite of options to promoters who want to find the best fit in terms of structuring their product offerings. This is further evidenced by the work currently underway to update the Qualifying Investor Fund regime to embrace the requirements of the AIFMD and through the introduction of Real Estate Investment Trusts (REITs) in Ireland.