Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I am informed by Revenue that once a qualifying investor alternative investment fund is authorised by the Central Bank it falls under the definition of an "investment undertaking" under the taxes Acts. It is therefore subject to the tax treatment provided for investment undertakings. The legislation provides a tax exemption to the undertaking itself and to certain investors, such as investors not resident in the State.

The normal tax treatment afforded to Irish collective investment undertakings 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 in 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 or fund.

I am aware that concerns have been raised about the use of funds in the Irish property market by international investors which may be eroding the tax base. Officials from my Department and the Revenue Commissioners are examining the use of certain structures in the property market and are preparing measures to ensure the tax base is protected. I will consider these targeted proposals on the use of funds in the property market for inclusion in this year's finance Bill. The measures will be targeted to ensure they do not adversely impact on the wider funds industry which is of great importance to the broader international financial services sector.

I reaffirm the stance that Ireland has extensive protections under our tax code to prevent tax avoidance which are strengthened on a regular basis to keep pace with any new threats to the tax base identified by the Revenue Commissioners or otherwise. In effect, therefore, the answer to the question is "Yes".

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