Dáil Éireann Debate, Thursday - 9 September 2021
183. Deputy Brian Leddin asked the Minister for Finance the purpose of the deemed disposal of exchange traded funds for taxation purposes after eight years; if he plans to change this arrangement for small investors; and if he will make a statement on the matter. [41825/21]
View answerThe normal tax treatment afforded to Irish collective investment funds is that the funds invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, as is standard international practice.
In order to ensure that the appropriate tax is collected from Irish investors, funds are obliged to operate an exit tax regime and remit the tax deducted in this manner to Revenue. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, their liability to tax on gains from the fund will be determined in their home jurisdiction.
The broad rationale for exempting such funds from direct taxation is to facilitate individuals to invest collectively, without suffering double taxation (that is, taxation both within the fund and in the hands of the investor on distribution). Most OECD countries now have a tax system that provides for neutrality between direct investments and investments through a Collective Investment Vehicle/Fund.
There is a charge to tax on Irish residents on the happening of a “chargeable event”. In order to prevent the indefinite deferral of a chargeable event (and therefore an exit charge), a deemed disposal occurs 8 years following inception of a policy of life assurance or acquisition of a fund and then every 8 years thereafter. The deemed disposal rules also apply to equivalent offshore funds. Any gain on the investment which arises from the date of inception or the date of acquisition to the date of the deemed disposal is subject to tax. This ensures that income isn’t rolled up indefinitely in life assurance policies or funds without being taxed. On the ultimate disposal of the investment, any tax paid which arose as a result of a deemed disposal is allowed as a credit against any final tax liability on disposal.
There are no plans to review the 8 year deemed disposal rule at this time.
