Joint Committee on the Secondary Legislation of the European Communities debate -
Wednesday, 23 Mar 1977

Collective Investment Undertakings for Transferable Securities.

Chairman

This is a very complex technical matter and we are fortunate in having Senator Alexis FitzGerald on the Committee in this regard because his knowledge of these matters is comprehensive. He has been very helpful to the sub-committee in the preparation of this draft report which is before us. He has also submitted a number of amendments to it.

The draft report itself, for such a technical subject as this, is very readable. It highlights a very important aspect of the whole business and that is the taxation aspect. The very key sentence in the draft report is on the bottom of page 4 which states:

The Joint Committee is informed that in none of the other Member States except the United Kingdom are unit trusts or their counterparts subject to capital gains tax. In the United Kingdom gains are charged at half the normal rate, (i.e. 15%) and unitholders on selling their units receive a credit at half the basic income tax rate (i.e. 17½%) whether the unit trust has realised or been taxed on any gains. More precise information on the taxation of CIUTS in the other Member States is contained in the Appendix.

On page 5 it is stated:

If the Irish unit trust industry is to withstand the competition envisaged and to be given a fair chance of expanding the Joint Committee believes that its liability to capital gains tax needs to be reviewed before the proposed Directive is implemented. At least as a first step the tax liability should, in the Joint Committee's view, be reduced to the British level.

That is a very clear-cut net issue and I think we have, one way or another, worked ourselves into a disadvantageous situation in this context. I take it that the Committee agree with that recommendation? We could now take Senator FitzGerald's amendments.

Sections 1 and 2 agreed to.

Senator Alexis FitzGerald

I move amendment No. 1:

In page 3 to add the following sentence to the first paragraph of section 3:—

" Furthermore, a number of other unit trusts which are not open to the public operated by other companies which are not registered under the Unit Trusts Act, 1972 will not be affected by the proposed Directive."

This amendment relates to the fact that apart from certain registered unit trusts, two of which exist, one specialising in gilt edged and the other in equities, there are other unit trusts operated by insurance companies which do not come within the terms of the 1972 Act but were within the terms of the original Bill. Apart from these there are other unit trusts not open to the public and so, therefore, are not registerable. To give a complete picture I suggest that the proposed amendment be inserted at this point in the draft Report. These trusts will continue to operate but they will not be selling their units to the public, either in Ireland or anywhere else.

Amendment agreed to.

Senator Alexis FitzGerald

I move amendment No. 2:

In page 4 to insert " and other " between " Insurance " and " Companies " in the last line of section 3.

This amendment is consequential on amendment No. 1.

Amendment agreed to.

Section 3, as amended, agreed to.

Senator Alexis FitzGerald

I move amendment No. 3:

In page 5, line 7, to insert after " this report " the following:—

" It is true as pointed out in the Appendix that UK unit trusts (unlike Irish) are subject to Corporation Tax but as the unit trust receipts from investment in Corporations are franked from Corporation tax an effect of this is that it has prevented the UK industry from forming Bond or Government Stock Funds which in Ireland would be obviously undesirable."

This amendment is concerned to make it clear in the body of the text that we were aware that Irish unit trusts are not subject to corporation tax but United Kingdom unit trusts are. The only effect that has developed in the United Kingdom of the existing fiscal rule in Britain is to discourage unit trusts from investing in Government loans. It is to make the picture complete when we are making a recommendation regarding capital gains tax. We should show an awareness of the income tax position.

Amendment agreed to.

Senator Alexis FitzGerald

I move amendment No. 4:

In page 5 to delete " this information " in line 7 and substitute " the information given in the Appendix ".

Amendment No. 4 is consequential on amendment No. 3.

Amendment agreed to.

Section 4, as amended, agreed to.

Senator Alexis FitzGerald

I move amendment No. 5:

In page 6, line 7 to delete " does not " and substitute " is not capable of being interpreted so as to ".

We have in the text a recommendation that Section 1 (1) of the Unit Trusts Act, 1972 be amended to ensure that the reference to participation of the public does not prohibit an offer to a section only of the public. There is a legal dispute as to whether it does. I have tabled the amendment to make it clear that it is not capable of being so interpreted. In other words, " the public " is so defined to exclude an offer to a section of it.

Chairman

The paragraph would then read: " . . . that the reference to ‘ participation by the public ' is not capable of being interpreted so as to prohibit an offer to a section only of the public ".

Deputy M. E. Dockrell

Is it intended to eliminate " does not "?

Chairman

That is common sense. "Participation by the public" is capable of being interpreted so as to prohibit an offer to a section only. We now propose to insert the words " is not capable of being interpreted so as to ".

Amendment agreed to.

Section 5, as amended, agreed to.

Senator Alexis FitzGerald

I move amendment No. 6:

In page 7, after "another" in line 18 to add " and effective control over whose affairs is not shown to the satisfaction of the competent authority to be exercised independently of that other ".

This relates to Section 6 (iii) headed Article 13. The text suggests that the proposed Directive should extend the prohibition of the same company acting as both manager and depositor to a subsidiary of the one acting. At this moment the only two registered trusts are subsidiaries of each other. The Department or the Minister is satisfied, relying on the provisions of our existing Act, that effective control over both is different in spite of that. I suggest that we should ask that the Directive be extended to allow that situation to continue. In many cases where there is a subsidiary that is all right if the Department are satisfied that effective control is operated differently.

Amendment agreed to.

Senator Alexis FitzGerald

I move amendment No. 7:

In page 7, after " only " in line 24 to insert " professionally qualified ".

This relates to the desirability that, if people here in Ireland are being asked to subscribe to these units, the accounts which are furnished to them should be certified by professionally qualified persons.

Amendment agreed to.

Section 6, as amended, agreed to.

Sections 7 and 8 agreed to.

Chairman

Is it agreed to adopt the draft report?

Draft report, as amended, agreed to.

Ordered: To report accordingly.