Paschal Donohoe (Dublin Central, Fine Gael)

I move amendment No. 21:

In page 54, between lines 18 and 19, to insert the following: “Amendment to section 835AVB of Principal Act (collective investment scheme)

39. (1) Section 835AVB of the Principal Act is amended—

(a) in subsection (1)—

(i) by the insertion of the following definitions:

“ ‘EEA Agreement’ means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement; ‘EEA state’ means a state which is a contracting party to the EEA Agreement; ‘foreign tax’, in relation to a relevant territory, means a tax which—

(a) corresponds to corporation tax in the State,

(b) generally applies to income, profits and gains arising to a company that is resident for the purposes of tax in that territory, and

(c) is imposed at a nominal rate greater than zero per cent;

‘investment limited partnership’ means a partnership authorised in accordance with the Investment Limited Partnerships Act 1994;

‘listed territory’ has the same meaning as it has in section 835YA;

‘relevant company’, in relation to an investment limited partnership, means a company—

(a) which is a direct or indirect asset of the investment limited partnership,

(b) in which the partners of the investment limited partnership are beneficially entitled, directly or indirectly, to not less than 95 per cent of its ordinary share capital,

(c) whose business consists of the holding, directly or indirectly, of a diversified portfolio of assets, and

(d) which is—

(i) resident in the State, or

(ii) by virtue of the law of a relevant territory, is—

(I) resident for the purposes of foreign tax in the relevant territory, and

(II) not generally exempt from foreign tax; ‘relevant territory’ means—

(a) an EEA state, other than the State,

(b) not being such an EEA state, a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made, or

(c) not being a territory referred to in paragraph (a) or (b), a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law, but does not include a listed territory;”,

and

(ii) in paragraph (b) of the definition of “relevant investment undertaking”, by the deletion of “, within the meaning of section 739J”,

(b) in subsection (4)(a), by the substitution of “20 per cent” for “10 per cent”, and

(c) by the insertion of the following subsection after subsection (4):

“(4A) In the case of an investment limited partnership, for the purposes of subsection (4)(a)—

(a) a relevant company shall not be considered to be an issuer of securities to the investment limited partnership, and

(b) an investment limited partnership shall be deemed to hold directly any securities held by a relevant company.”.

(2) Subsection (1) shall apply for the year of assessment 2026 and each subsequent year.”.

Building on the recommendations set out in the funds review, and following on from the amendment to the dividend withholding tax included in the Finance Bill as published, which aims to support increased use of investment limited partnerships, ILPs, I am updating the reverse hybrid rules in section 835AVB of the Taxes Consolidation Act 1997 to better align the assessment of diversification with industry practices. Reverse anti-hybrid rules were introduced in the Finance Act 2021 as part of the transposition of the second anti-tax avoidance directive, ATAD. The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more territories to generate tax advantage. The reverse hybrid rule contains a mandatory exemption for collective investment vehicles, CIVs, that are widely held, diversified and subject to regulation, but the specific definitions to be used for these terms were left to the discretion of member states.

This provision amends the legislation governing the assessment of diversification in two ways, first, where a CIV holds securities by increasing the maximum amount of such securities that can have been issued by a single issuer from 10% to 20%. Second, it provides for the look through of holding companies in an investment structure for the purpose of determining whether an ILP's investments are sufficiently diversified. The ILP must own directly or indirectly at least 95% of the intermediate holding company and the holding company must be resident in the State, another EU or EEA member state or treaty partner jurisdiction and must not be generally exempt from tax.

These amendments will update the assessment of diversification to reflect industry practice and ensure that where an ILP uses holding companies in its investing structure, regard will be had to the full pool of investments in assessing whether the fund is sufficiently diversified.