Dáil Éireann Debate, Tuesday - 5 October 2021
172. Deputy Neale Richmond asked the Minister for Finance if he will conduct a review of the deemed disposal rule that leads to tax being charged on exchange traded funds every eight years even if the profits have not been realised; and if he will make a statement on the matter. [47779/21]
View answerAn Exchange Traded Fund (ETF) is an investment fund that is traded on a regulated stock exchange. There is no separate taxation regime specifically for ETFs. Being collective investment funds, they generally come within the regimes set out in the TCA 1997 for such funds.
The 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. Most OECD countries have a tax system that provides for neutrality between direct investments and investments through a Collective Investment Vehicle/Fund.
Funds are obliged to operate an exit tax regime and remit the tax deducted in this manner to Revenue. This ensures that appropriate tax is collected from Irish investors. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors’, liability to tax on gains from the fund will be determined in their home jurisdiction.
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.
Any gain on the investment which arises from the date of inception or acquisition to the date of the deemed disposal is subject to tax. This ensures that income isn’t rolled up indefinitely in funds or life assurance policies without being subject to tax. 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 currently no plans to conduct a review the 8 year deemed disposal rule.
