Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

We want to see more of that spread around the country in line with that trend because it is important.

All that is on the positive side. I do have to make a criticism of the delay in getting the Bill to the floor of the House. I have been asking questions for probably two years at this stage about the investment limited partnerships legislation. It has been pointed out to me, and no doubt to the Minister of State, on many occasions that the delay in bringing forward this legislation and in modernising the framework for ILPs in Ireland has cost us investment, particularly in the context of Brexit. Many decisions relating to ILPs have been already made, from which Ireland has not benefited. I think we have missed out on some benefits, but it is important we now move as quickly as we can while at the same time getting the legislation right. By the Minister of State's own acknowledgement, the legislative architecture has not kept pace with market or regulatory developments, so it is past time we focus on this legislation. I hope we can get it enacted in a reasonably short timeframe.

The Minister of State took us through the detail of the Bill in his opening speech and indicated that he intends to bring forward a number of amendments relating to the introduction of a beneficial ownership register for ILPs. He acknowledges that this is a complex area. I hope the work on those amendments will not delay us significantly and that we can move quickly because quite some time ago the members of the Oireachtas finance committee, on my suggestion, agreed to waive the right to pre-legislative scrutiny in order to try to get this legislation through the system.

The goodwill is there on our part to facilitate the passage of this Bill while also subjecting it to detailed examination on Committee and Report Stages in the normal fashion.

As the Minister of State outlined, an ILP is essentially a regulated partnership structure that does not have a separate legal personality. It is important to acknowledge that for a quarter of a century, Ireland has been a leading domicile for internationally distributed investment funds. Over that time, we have built a solid reputation as a well-regulated EU location for investment funds and a centre of excellence for services provided to investment funds, whether oversight, fund administration or depository legal compliance and audit. While we have had much success in the so-called open-ended fund structures, we have had much less success in the closed-ended space in which this ILP structure sits. That type of structure lends itself more as the vehicle of choice for investment in the real economy because it meets the requirements of long-term professional investors in ways that are hard to achieve in other fund structures. It is important to make that point and make the connection between the ILP structure and potential benefits it can bring for the real economy by way of actual investments that can deliver significant benefits to the country.

I understand that of more than 7,000 regulated investment funds in Ireland, only six or seven are ILPs, as the Minister of State mentioned. A limited partnership fund is a form of business partnership which is common globally in many of the key jurisdictions with which we compete. It is a common fund structure which is used as a vehicle for investment in the real economy. Given that the ILP legislation is 23 years old, it has been acknowledged already that it has not kept pace with developments in this area, including the most important regulatory development in the alternative investment fund space, the 2013 alternative investment fund managers directive or AIFMD.

I have been engaging, as I know the Minister of State has, with the sector for some time now to try to get a handle on what this legislation means from its perspective. We must have our own independent examination of that. I know the Central Bank was heavily involved in drafting the legislation. It is important to note that this is very much a regulated sector and ILPs are a regulated fund structure. The Central Bank will have the full suite of regulatory and enforcement powers at its disposal in respect of these fund structures under the Central Bank (Supervision and Enforcement) Act 2013. It is important to make clear that we are not talking about the wild west. These are highly regulated, sophisticated fund structures which will be monitored closely by the Central Bank. The Minister of State will need to reassure us that the Central Bank will be adequately resourced to meet the extra regulatory burden that will inevitably follow if there is major growth in the ILP space. As many as 1,500 jobs could be created in the coming years, which would mean considerable activity relating to ILP fund structures. The Central Bank will need to be resourced and have adequate expertise to ensure the area is properly regulated. That is a key point. The Central Bank carries out extensive reporting, including monthly and quarterly statistical reporting which is done on an aggregated basis, on all Irish regulated investment funds. As I understand, however, this reporting is not done specifically for any type of fund legal structure such as ILPs.

It is important that we examine in detail the nature of these fund structures and the impact they will have on tax, which will no doubt feature in the Committee Stage debate. Unlike corporate entities, partnerships are treated as transparent for tax purposes. Partnership funds, including ILPs, follow the same treatment. In essence, it means that investors or limited partners are treated as directly holding the underlying assets in the ILP and are taxed accordingly. Similar to other funds, when an ILP makes distributions to the limited partners, the limited partner will be taxed in its home jurisdiction according to the tax treatment applicable to it. As limited partners directly own a portion of the underlying assets, the investors can be subject to tax on capital gains or income even where they have not received the relevant cash proceeds. This is the case under the Irish tax system where investors, both resident and non-resident, will be individually liable to pay any taxes as they fall due in respect of Irish assets that they hold. An investor will have the same tax liabilities whether it purchases the asset itself or, alternatively, invests in an ILP which purchases the asset through that structure. We will tease out in greater detail on Committee Stage the taxation issues involved here. From my examination, I do not see any basis for an argument that the introduction of this legislation will facilitate tax avoidance because the investors are directly accountable and liable for their own tax liabilities on the basis that they are holding the assets directly as opposed to as a collective. It does not seem at this point to be a tax-driven structure. We will examine that matter on Committee Stage.

ILPs can be a very important vehicle for real investments. They typically invest in a very broad range of assets, ranging from equities and bonds to investments in non-listed companies, infrastructure, renewable energy and real estate. It is expected that the most significant proportion of the investment will be private equity in the area of non-listed companies, including venture capital in small and medium enterprises, SMEs, and start-ups, growth investing in established companies, and buy-outs. It is important to point out who the end investors are likely to be. They are professional investors and typically institutional investors. Investment in such funds comes predominantly from public pension funds, sovereign wealth funds, private sector pension funds and insurance companies. These institutional investors account for about three quarters of all investment in ILPs.

The Fianna Fáil Party is supportive of the Bill. We would like to see it progress to the next Stage as quickly as possible. We will engage collaboratively on Committee Stage and closely examine the Bill and any amendments the Minister of State proposes. It is important that the ILP legislation is updated. This will bring benefits for Ireland. It will facilitate further expansion of international financial services here and that is to be welcomed.

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