Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

With regard to the proposal that the Minister prepare within nine months a report on the subject matter outlined in the amendment, in 2010 the OECD published a report on the taxation of collective investment vehicles, or funds as they are more commonly referred to, which stressed the importance of tax neutrality for investments made through funds. As the investor will pay tax on any income received from the fund, any taxation at the fund level itself would result in double taxation. Without tax neutrality, the benefits of investing through a fund would be outweighed by the double taxation that would arise.

Most OECD countries now have a tax system that provides for neutrality between direct investments and investments through a fund.

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, which, as I have outlined, is standard international practice.

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 the Revenue Commissioners. 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.

There is a recognition worldwide of the benefits that collective investment vehicles provide to facilitate smaller investors in planning for retirement. In its 2010 report, the OECD noted that governments have long recognised the importance of funds as a complement to other savings vehicles in terms of facilitating retirement security. In many countries, participants in defined contribution retirement plans invest primarily in funds. Since funds allow small investments, they are ideally suited for such periodic savings plans. They are highly liquid, allowing withdrawals as needed by retirees. With ageing populations in many countries, funds will become increasingly important.

The OECD report notes that a small investor who buys interests in funds can instantly achieve the benefits of diversification that otherwise would require much greater investment. Funds also allow small investors to gain the benefits of economies of scale even if they have relatively little invested. In addition, investors in funds benefit from the market experience and insights of professional money managers. We addressed that in discussing the previous two sections.

It is important to note that Ireland has extensive protections under our tax code to prevent tax avoidance. These are strengthened on a regular basis to keep pace with any new threats to the tax base identified by the Revenue Commissioners or otherwise. Where tax avoidance schemes or abuse of the tax regime are identified by the Revenue Commissioners and brought to the Department’s attention, any proposals will be considered by the Minister for Finance in the context of the Finance Bill.

However, as has been outlined, the use of fund vehicles is not using a loophole or a tax break. They are simply a method of facilitating collective investment. Therefore, it is not proposed to accept the amendment.