Dáil Éireann Debate, Tuesday - 14 December 2021
203. Deputy Ged Nash asked the Minister for Finance the revenue raised from the eight-year deemed disposal rule from 2016 to 2020, in tabular form; the expected annual cost of discontinuing the eight-year deemed disposal rule on collective investment funds; and if he will make a statement on the matter. [61218/21]
View answer204. Deputy Ged Nash asked the Minister for Finance his views on the concerns expressed by a person (details supplied) relating to the eight-year deemed disposal rule; and if he will make a statement on the matter. [61219/21]
View answerI propose to take Questions Nos. 203 and 204 together.
Finance Act 2000 introduced the gross roll-up taxation regime for investments in domestic funds (in section 58) and for investments in life policies (in section 53). While Finance Act 1990 had introduced anti-avoidance rules that are known as the “offshore funds” regime, Finance Act 2001 (section 72) amended the offshore funds regime to provide for gross roll-up in certain offshore funds that were similar to the Irish funds within the gross roll-up regime.
The general thrust of the regime is that there is no annual tax on income or gains arising within the investment. However, exit tax must be deducted on the occurrence of a “chargeable event”. Exit tax applies to the profit element of each chargeable event, and chargeable events originally included –
- the making of relevant payments (which includes any dividend),
- the redemption of the investment, and
- the transfer by an investor of their investment.
Finance Act 2006 introduced the eight-year deemed disposal for all investments that benefited from gross roll-up: that is, investments in Irish funds, investments in life policies and investments in offshore funds that were similar to Irish funds. The eight-year deemed disposal was introduced as a new category of ‘chargeable event’ and is designed specifically to prevent the indefinite deferral of taxation.
In relation to a deemed disposal, the amount to which exit tax applies is the growth in value of the investment. When calculating the amount on which exit tax applies for a deemed disposal, any amounts already paid out as dividends are excluded. Any tax collected on a deemed disposal is available as a credit against any tax arising on a subsequent actual disposal.
Tax on chargeable events is returned to Revenue in three ways:
1. The majority of Irish funds will deduct what is known as “Investment Undertaking Tax”, or IUT, on the happening of a chargeable event;
2. Irish life companies will deduct what is known as “Life Assurance Exit Tax”, or LAET, on the happening of a chargeable event; and
3. Irish individuals account, through their Form 11, for exit tax on the happening of a chargeable event in respect of offshore funds and certain Irish funds that could not have deducted exit tax (such as Irish Exchange Traded Funds where the chargeable event is the sale of the share on a stock exchange).
I am informed by Revenue that they can identify the amounts of IUT, LAET and income tax accounted for in respect of chargeable events, but it is not possible to provide a breakdown of the tax as between the amount relating to the eight-year deemed disposal and the amount relating to the other types of chargeable events. Therefore, it is not possible to provide information on how much tax would be forgone if the eight-year deemed disposal was to be removed.
The table below provides an estimated amount of overall exit tax, including IUT, LAET and income tax on certain offshore investments.
|
Year |
Investment Undertaking Tax |
Life Assurance Exit Tax |
Income Tax* |
Total |
|
€m |
€m |
€m |
€m |
€m |
|
2020 |
121 |
124 |
** |
245 |
|
2019 |
53 |
128 |
22*** |
203 |
|
2018 |
45 |
165 |
14 |
224 |
|
2017 |
40 |
184 |
20 |
244 |
|
2016 |
37 |
228 |
17 |
282 |
* The estimate of Income Tax is derived by multiplying the reported gains relating to Offshore Funds in Panel E, row 322, in Form 11 regarding Gains taxable at 41%
** 2020 income tax amounts are not yet available
*** 2019 income tax amount is provisional
