Wednesday, 7 October 2020
Investment Limited Partnerships (Amendment) Bill 2020: Committee Stage (Resumed)
I welcome the Minister of State back to the House. Last week, we were chatting about the elephant in the room and the need for the Minister of State to, perhaps, confront it. I will reach out to him with an olive branch, as he knows that is the way we work in Sinn Féin. It is very important that the Minister of State engages with us on the Bill. If his determination is just to reject amendment after amendment, we will push every amendment.
The amendment from Senator Higgins we are discussing is very reasonable. It states:
Within 12 months of the passing of this Act, the Minister shall lay before both Houses of the Oireachtas a report in respect of the impact and use of the provisions in this Act, including a consideration of compatibility with the OECD Base Erosion and Profit Shifting (BEPS) guidelines, and their impact, if any, on the Revenue Commissioners.
This cuts to the core of our concerns as the truth is that because of the lack of pre-legislative scrutiny, we are not sure if there are pitfalls in this Bill. I have concerns.
I should also flag to the Minister of State that I was contacted by a journalist who maintains a submission was made to the his Department on this Bill by the industry and, effectively, it was effectively written by people in the industry. I am not making that claim but I am putting it to the Minister of State and I would like a response. The disturbing fact is that a copy of the submission was sought but the request was refused. I do not know the rights and wrongs of this but it is causing me particular concern. The Minister of State's job today is not just to drive through the Bill but it should be to engage with us constructively, take on board the concerns of both me and others and work with us in that regard.
There was a lack of pre-legislative scrutiny with this Bill. We know what has happened in the past week; I will not revisit it but the experience has been very uncomfortable for all us in the way the former Member left, almost in the middle of the night. When my colleague, former Senator Trevor Ó Clochartaigh, left, he gave notice, came here and made a farewell speech. It is bizarre and worrying that somebody could leave on the type of terms we saw. I am not the only person who feels that way.
There are real concerns about the Bill. We do not know enough about it and we have not looked into it enough. We know in other jurisdictions these kinds of investments can lead to very poor practice, to put it mildly. I am not suggesting it is the case here but rather that there are concerns we must address before moving forward. My other key request is that the Minister of State agrees to a pause after Committee Stage so we can engage with the Minister and his Department on a cross-party basis to have a closer look at this Bill.
Perhaps we can agree on those points. I am not saying that we will let the Bill through freely if we do, because there are two or three key sections that really concern us, but we will work with the Minister of State in a constructive and positive way. If the Minister of State is not willing to do that, we will have a bit of argy-bargy for the next hour or so. It would not be the end of the world and we will get on with it, but I hope we can work constructively.
I thank the Senator for his comments on the amendment. I will deal with the amendment first before responding to the Senator's points.
I understand what is behind the amendment, which proposes the making of a report for laying before the Houses. I reassure the House that it is my intention to lay a post-enactment scrutiny note 12 months after the enactment, in line with Standing Orders. It is now normal procedure that within 12 months of legislation being passed, post-enactment scrutiny would be published. I contend the good intention in the amendment has been taken care of by Standing Orders in situ.
I will outline our commitments on international tax and where Senators can find regular updates in that regard. The OECD BEPS project developed 15 actions designed to equip governments, in domestic and international rules and instruments, to address tax avoidance, ensuring that profits are taxed where economic activity generating the profits is performed and where value is created. That process is ongoing and most people would be surprised if the BEPS process was completed in a 12-month period. Ireland has very strong views and we do not see some of the proposals as being in Ireland's interest. It will be a long time before we get to the OECD BEPS guidelines being enacted. It will not happen in the next 12 months but we will have that other report.
On the domestic level, the corporation tax roadmap, which was published in September 2018, outlined the actions Ireland would take and significant measures were delivered in the Finance Act 2019. An update of Ireland's corporation tax roadmap will be published in the weeks ahead, reflecting on the significant progress we have made and considering the future actions that may be required to ensure Ireland's tax system meets the international standard. The updated corporation tax roadmap will also provide an opportunity to reflect on the evolving international tax environment and the important work that continues at OECD level. Accordingly, due to the upcoming publication of the update to the corporation tax roadmap and the commitment to a post-enactment scrutiny within 12 months, I will not be accepting the amendment. Both matters have been reasonably dealt with.
As we all know, it was agreed by the Oireachtas that there was no requirement for pre-legislative scrutiny with this Bill. The matter was dealt with earlier this year by the Minister, Deputy Donohoe. It was sought but Oireachtas committees had not been put in place during the summer, so it was not possible to have such pre-legislative scrutiny.With regard to a related matter that has been raised, it is important that I put it on the public record that the original iteration of this Bill, which eventually went through the Lower House in 2019, was the investment limited partnership and Irish collective asset-management vehicle (amendment) Bill 2017. An issue was raised about who would have participated in the pre-legislative scrutiny at that stage. It is very important that I put this on the public record. On 20 November 2017, the Minister for Finance, Deputy Donohoe - no one else - wrote to the Oireachtas joint committee of Deputies and Senators specifically on that legislation to say that officials from the Department would be available to meet the committee to clarify further the provisions of the Bill and to ask for the committee to come back on pre-legislative scrutiny. Two months later - and I am aware it was over the Christmas period - on 7 February 2018 the Oireachtas joint committee wrote back to Department of Finance on a number of issues. Under No. 3, pre-legislative scrutiny, four items were mentioned. The committee, which was made up of Deputies and Senators, wrote to the Department regarding the first format of the Bill to say it would not undertake scrutiny of the investment limited partnership and Irish collective asset-management vehicle (amendment) Bill 2017. It was a decision of the joint committee to not undertake pre-legislative scrutiny. They were offered it and they were told the officials would be available. The joint committee in the last Oireachtas chose not to do it. There was no pre-legislative scrutiny. Nobody involved in the Oireachtas up to now or at the moment was ever involved in any pre-legislative scrutiny on this issue because of a decision made by an Oireachtas joint committee, rather than by the Department, the Minister and the Government. A committee of Deputies and Senators chose not to do it. I genuinely hope this fully updates the record of the House on the question of pre-legislative scrutiny. During the course of the summer of this year, when the committees had not yet been populated, the House decided not to have pre-legislative scrutiny on this occasion. On the basis of the points I have already covered, I am not in a position to accept this particular amendment today.
I thank the Minister of State. It is very important that we clarify for the record that the decision to which he refers was made by the previous Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. As a member of the current Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach I would say that no decision has been made by the committee because no opportunity for a decision has been provided to it. As the Minister of State has said, the current committee was not formed at the time this Bill was placed on the Order Paper. The committee was formed in the week in which this Bill was brought to the Chamber. Therefore, the Government would have had an opportunity, if it so wished, to seek to bring the Bill to the point of pre-legislative scrutiny.
I note that when legislation has been brought forward by the Opposition and wider concerns have been raised, it has been a common practice for a request to be put to the relevant committee for the issue to be scrutinised further before the Bill proceeds from Second Stage to Committee Stage. When I look around the House, I recognise people who have experienced this when it has happened in the past. Of course it is the prerogative of the committee, but there is nothing to preclude the Minister of State from requesting the committee to examine issues around the Bill in the interim between Committee Stage and Report Stage. I suggest to the Minister of State that this would be advisable. As has been said earlier, this is not simply about making sure we are technically within the boxes; it is also about proper process being seen to be done. It is not just about whether we are confident it was done; it is also about it being seen to be done. There is a huge issue of confidence in the public mind specifically around the area of financial services following some of the decisions made in the past regarding the bailout. It is very important that there is public confidence in people seeing their concerns fully and properly addressed and, while everybody is entitled to lobby, that there is not a perception of lobbyists being in direct conversation with the Government, or of other conversations with public representatives being in any way short-circuited.
Perhaps the Minister of State did not get the opportunity to address it in his first response but I respectfully suggest that because the circumstances have changed, there needs to be a period of reflection and engagement with the joint committee and others on a cross-party basis between Committee Stage and Report Stage of this Bill. This point was made by my colleague, Senator Gavan. It is a concern especially in the context of this Bill, which was championed by a particular lobbying body that now has working for it a former Minister of State who would previously have engaged with that body. This concern needs to be seen to be addressed and reflected upon in an appropriate way.
The Minister of State did not have the opportunity to clarify the extent to which there has been prior consideration of the issue of base erosion and profit shifting, BEPS. My amendment calls for a report within 12 months of the passing of the Bill. I note there are those who suggest I should be looking to a report and perhaps even a review and expiry of the measures at some stage. Perhaps 12 months might be too soon to assess fully the impact these measures will have. The Minister of State mentioned a roadmap on corporation tax that we are due to have. Will the Minister of State commit, or assure us, that he will not proceed to Report Stage of this Bill before we have the roadmap on corporation tax ahead of us? That would be a really appropriate gesture of compromise and reflection.
I remind the House that €240 billion is lost every year as a result of BEPS. There are 15 key actions that Governments are required to take. Country-by-country reporting, which is action No. 13 under the BEPS framework, is one of the key issues. The Minister of State might indicate where Ireland is on action No. 13 - country-by-country reporting - because it is a crucial issue.
There is also the question of the Revenue Commissioners. My other amendments on the Revenue Commissioners later in this Bill have been ruled out of order because they would potentially represent a charge on companies. This is strange because it is also a possible benefit for the State. There is a very real concern around any measure that might be seen to hollow out revenue for the State at a very critical time. I wonder how we will be able to measure or assess the impact of these measures in revenue terms. Will the corporation tax roadmap assist us and, if so, can we delay Report Stage of the Bill until after that roadmap?
I note there has been a massive increase in investment limited partnerships. Section 110, a previous scheme, was used by a lot of investment companies. There was a big shift in where investment limited partnerships were happening in the UK and in other places when measures narrowed that scheme. It seems to be channelled, or somehow linked, into the pressures around this Bill and I am also concerned about this. Will this legislation be like section 110 insofar as we flag a potential concern and then flag it happening, and then years after the horse has bolted we discover there was a problem? The capital gains tax waiver, for example, was signalled by many of us as a real concern early down the line with regard to its exploitation by investment funds. That was recognised by the Government but possibly two years too late. We are just trying to get ahead of things again.
I would appreciate it if the Minister of State would clarify those few questions. What are his intentions around reflection or engagement between Committee Stage and Report Stage? What consideration, if any, of the OECD actions was taken in relation to the Bill and the drafting of the Bill? Will the Minister of State clarify the corporation tax roadmap and how he sees this Bill reflecting or relating to that?
If I do not cover all of the Senator's points, perhaps she will remind me straight away. Reference was made to a possible influence on the drafting of the original legislation. I would say the need for this Bill goes back to 2015. Every year there has been progress on it. Many people were very much aware of this issue over the past five years. It has not come as a surprise, this year or last year, or even the year before that. It has been around for quite a period of time.In the interests of supporting the industry, having new business opportunities in the financial services sector in Ireland, additional investment into Ireland and job creation potential in Ireland, it was decided to proceed with this legislation. Ireland does not want other countries, which are moving a bit more swiftly with their legislation, having products available that people are seeking to invest in but Ireland not having the adequate legislation in place. That is why we drafted this legislation over a five-year period.
To start with, the financial services industry was asked and every investment limited partnership, ILP, will be regulated by the Central Bank. If we have confidence in the Central Bank, we have to be happy that it will do that job, and that is why it was involved in the legislation in that it will be the regulator.
The Revenue Commissioners were extensively involved in this, ensuring that the issues to which the Senator referred were adequately dealt with, which is why we have greater transparency in relation to same. People have to show their passports or prove they are the beneficial owner, which is an improvement on the original legislation. That was not in the original iteration. The Revenue Commissioners are satisfied with the current regime in relation to the taxation of the profits of ILPs. The Department of Business, Enterprise and Innovation was heavily involved because it is part of business promotion. This would have been cleared at EU and IMF levels because such legislation now requires clearance at EU and IMF levels. Therefore, there has been quite an extensive amount of discussion on this legislation over the five-year period.
On the base erosion and profit shifting guidelines, one of the most critical ones that we have already implemented is action 13, that is, out of a total of 15. It concerns country-by-country reporting. That is really what people want to see where businesses are operating at an EU level above a certain threshold of turnover, that is, that there is country-by-country reporting. We will continue to implement some of the other base erosion and profit sharing actions in good faith, notwithstanding that the process is not yet complete, and nobody can give a date on which that will happen. People will have to accept that it is not appropriate to put this legislation on hold pending negotiations at OECD level, when nobody can put a date on when it might be.
The corporation tax legislation currently in place is very strong and robust and fully caters for this. We discussed this on Second Stage in the Seanad where this legislation was initiated. I provided answers on taxation in terms of ensuring there was full taxation of profits that arise as a result of this legislation.
The roadmap for corporation tax, which was published two years ago, is due to be updated in the near future. It is not specific to this legislation at all; it is much broader than this. Whatever that roadmap might say on ILPs or might not say, because there might not be anything to report, I do not think it would be appropriate to hold up the establishment of these new business opportunities for Ireland to increase employment and revenue into the State, and investment through these funds, pending matters outside our control.
I always understood there was a First Stage, a Second Stage, a Committee Stage, a Report Stage and a Final Stage to legislation. I am not aware of any in-between Stage, for example, a Committee plus Stage, where something can be taken after Committee Stage for pre-legislative scrutiny, which is essentially being requested here. I have provided the reason that it did not happen initially and did not happen on this occasion either. The committees were not in place and quite recently the Business Committee specifically waived the right to pre-legislative scrutiny before this legislation came before either of the Houses of the Oireachtas. That was done on 3 September 2020 by the Business Committee.
The issue of pre-legislative scrutiny has been discussed at length. Everybody agreed that it was not necessary on this occasion. We are going through the normal legislative process, following the roadmap that we go through in the Oireachtas, and that roadmap can be very extensive and detailed. I am not aware of how I or the House has any authority to change the roadmap, and introduce a Committee plus Stage before Report Stage. I am not in a position, nor do I think anyone is, to give that commitment. The legislative process requires a Committee Stage followed by a Report Stage. I am not in a position to give a commitment that I can alter the process by which legislation is put through the House.
The previous committee chose not to do so. The Business Committee, which met at the beginning of September 2020, was made up of representatives of all parties, including Independents. It decided to waive the requirement for pre-legislative scrutiny of this legislation on 3 September. We are not in a position to overturn a decision made on an all-party basis in recent months.
I thank the Minister of State. I must say it has been disappointing so far. This is still awkward, and it is becoming more awkward, because what we were due to discuss today was the Credit Union Restructuring Bill 2020, but that was dropped, and this Bill was put on the agenda. It gives more credence to the question I raised on the first day, last week and I raise again now. What is the mad rush in relation to this Bill, particularly given what has happened in the past fortnight? The Minister of State has not addressed that matter. He has not addressed the matter of fact that the Minister who designed this Bill is now head of the Irish Association of Investment Management. He must address this matter.
Unless I am mistaken, the Minister of State has answered the question on the pause and said he will drive on with this. While I do not like his answer, I thank him for it. I ask him to answer the question I asked earlier in relation to submissions received from the investment industry and publication of same. I have been told the Minister of State's Department received a significant submission, and that effectively the industry has written this Bill. I have also been told that when a journalist asked for a copy of this submission, it was refused. I think it is important that we get clarity on those points.
I am personally not aware of that, and the only commitment I can give today is that I will have a response to that before Report Stage. I do not have the information today. I was not aware the Senator was going to raise that issue. If I had been aware of that in advance, perhaps I could have prepared a response. However, I do not have the information to reply to the question with me. The only commitment I can give is that I will have a response to the point the Senator made prior to Report Stage.
The Senator raised the issue of the Credit Union Restructuring Bill and asked why it has been held over. I will be up front. The reason is this Bill is more critical for the economy, for job creation and for investment than the Credit Union Restructuring Bill. The Credit Union Restructuring Bill will be before the House shortly. A restructuring board was established for credit unions after the financial crisis. Its job is completed. The Bill concerns the winding up of an old board that no longer has any function. It is a bit of housekeeping to wind up the old restructuring board that no longer has a role to play. There are no jobs or investment hinging on that Bill. Therefore, I would prioritise this legislation over the winding of the restructuring board legislation because this has job creation potential.
It might be useful if the Minister of State could provide us with information on the job creation potential before the next Stage because a lot of this seems to be around a different product that investors can buy. I think he hit on the nub of it when he mentioned other products that are available elsewhere. It is not around new industries being created, it is effectively around new products being offered. That is a concern. There are also other elements of concern in the Bill which we will have an opportunity to discuss later. One of my key concerns with the Bill relates to whether it might facilitate greater movement of investors between Luxembourg, the Channel Islands, Ireland and elsewhere in terms of where they get the better deal at the time. Anything that pushes us into a competitive dynamic where we are racing against each other in terms of investments is not necessarily a healthy way of engaging with or regulating the investment sector. I have a wider concern than the Minister of State's response touched upon.
I appreciate some of the points made by the Minister of State regarding the OECD. It is our prerogative to discuss our compatibility with it, even if we have not implemented the measures. I do not think my amendment is contradicted by the points the Minister makes. I hope and trust the Minister will champion the fast-tracking of full compatibility with the OECD, as I think that is important.
Others have made points to me about the timing of my report, suggesting that perhaps it needs to be slightly longer so that we can see what impact there might be, given that the first few months may be taken up with the companies setting up these structures and may not have time for a report.
I will speak to section 4 in a wider sense. I note that there are other aspects of section 4, including the question of the definition of "beneficial owner". The level is set at a 25% share, which is quite a high threshold in terms of beneficial owner. I am also concerned about the definition of "limited partner". They may be issues we will come back to as well on Report Stage.
My amendment may not be perfect and I recognise that we will have a form of report within 12 months, but because this is the only amendment in which I am able to put down a marker in terms of the OECD base erosion and profit shifting and the issues concerning revenue, I will still press the amendment. I appreciate and thank the Minister of State for providing the information he has given on his engagement with the Revenue Commissioners, and the lengthy answer in that regard. That is an issue I might try to follow up further with the Minister of State because I am conscious that amendments concerning the issue are often not compatible in terms of the potential charge on the Exchequer but there are a couple of issues I would like to tease out. I will press the amendment.
For the benefit of everybody, we are going through the Committee Stage amendments and this amendment, which was tabled by Senator Higgins, relates to the OECD and reporting on the impact of the legislation. I know where Senator Gavan is coming from and what point he is making. It is a valid point but it is just not valid in this part of the debate.
I know you do, a Chathaoirligh, but the Minister of State made a statement in the course of the debate that he would give us the information on whether a submission was refused to be released to the press in this regard. I need to get a commitment from him that we will not wait until Report Stage to get an answer to that point.
I do believe that it is a valid query that has been put and I would suggest that it relates to the amendment because the OECD base erosion and profit shifting guidelines came out in response to a lack of public trust in respect of how financial services were regulated and their impact on society. That is the context of the OECD BEPS guidelines, and other related financial transparency measures.
I think it is a legitimate response. Nobody is saying the Minister has to provide a response here and now. I appreciate he was not informed that this issue might arise, but it would be very useful for us to get a response when we do resume Committee Stage or in the interim because it may even provide complete assurance on lots of issues if we know what lobbying documents there are. We have a lobbying register and we endeavour to have transparency regarding lobbying. It is a useful and reasonable point that Senator Gavan has made.
My concern is specific to this section. I am asking if this section was drawn up by the industry. I am asking who, in effect, wrote this Bill because a concern that has been raised with me is that it was effectively written by the industry and that a submission was refused release by the Department. If that is not the case, the Minister should tell us clearly that it is so, and then we can move on. If it is the case then it is clear that we will need to ask a few more questions.
I think I made my position clear on the amendment. What I said is that I would have a response before Report Stage. That was not a commitment to confirm, deny or release any documents. I merely stated I would have a response. Everybody in this House knows well that freedom of information requests are generally refused if the matter relating to it is part of a deliberative process which has not yet concluded. Here we are taking part in the deliberative process. FOI requests are normally only replied to by issuing the information after the deliberative process has been completed. That is how freedom of information legislation has operated for a long time. That is a basic principle. It is not normal to release details in the middle of a finance Bill. The same applies to every public body and likewise with local authorities which will not release information while a matter is being considered, until such time as the matter has been concluded. I am just making sure Members are aware of the freedom of information request that is being referred to. I am not in a position to accept the amendment.
If that is the case then perhaps the Minister of State might be able to release it to those taking part in the deliberations. That might be a useful element, certainly for those of us seeking to deliberate. Given that the deliberations are under way, it might be a good starting point if we had access to documents that are considered relevant to the deliberations. It is either not relevant to the deliberations and can be released under FOI, or it is relevant to the deliberations and should be part of them. Perhaps either way we might see movement in relation to this interesting submission.
I wish to formally press the amendment.
Section 5 is another example of genuine concern. There are a lot of amendments of other pieces of legislation in this section and, as the Minister of State has acknowledged, there has been no pre-legislative scrutiny. Going back to an Oireachtas committee in 2018 really does not cut it because we all know what has happened in recent weeks. I think it was Pat Rabbitte that famously said, when the facts change, we change our minds. There is something inherently concerning regarding the Bill; who was in charge of it, what has happened and a lack of scrutiny. To be honest, I am more concerned now. It just does not read right. It looks to me like a Bill that has been written by the industry, in which case we do not know what the consequences may be.That is why we keep asking the Government to press pause here. It would probably be quicker to go back to pre-legislative scrutiny at the finance committee and acknowledge that in light of the special difficulties that have arisen that this is a flawed process. That is the right thing to do. We have given two or three options to do that today and the Minister of State has not moved even an inch, which is very disappointing. I will oppose this section. We do not know enough about it.
I want to stress that this legislation has been sponsored at all stages by the Minister, Deputy Donohoe. In the last Oireachtas, it was he who liaised with the joint committee and even though the Minister asked for time for legislative scrutiny, it decided not to do so. Only a few weeks ago, on 1 September, the Minister, Deputy Donohoe, wrote to the Ceann Comhairle seeking pre-legislative scrutiny. There was an intention to start it in the Dáil but it so happened to start in the Seanad. The Minister wrote:
The proposed legislative changes to the Investment Limited Partnership structure will provide a more flexible regime for investors wishing to use a partnership structure for regulated investment funds, to make Ireland more attractive to international investors and to grow the private equity funds sector. The Bill provides for Investment Limited Partnerships to migrate in and out of Ireland, subject to authorisation by the Central Bank of Ireland. In addition, there are some amendments to the ICAV Act 2015.
Information on the various changes are enclosed in the draft legislation prepared by the Office of Parliamentary Counsel.
The people who drafted the legislation are in the Office of the Parliamentary Counsel. It was not done outside. We do not outsource. If the office is particularly busy, we can outsource work under its control to people it identifies but the office itself prepared this Bill. The Minister concluded:
I have also included a copy of the Regulatory Impact Assessment for your information. If beneficial, my officials are available to meet with members of the Committee to brief them in more detail on the proposed amendments. I would be grateful, therefore, if the Committee could notify me as to when the pre-legislative scrutiny of the draft legislation could be accommodated.
It was an all-party committee and it decided to waive the requirement for pre-legislative scrutiny and wrote to the Minister of Finance accordingly. The Minister overseeing the legislation through the entire process is Deputy Donohoe and it was written by the Office of the Office of Parliamentary Counsel. Those are the facts, I cannot change them.
The purpose of section 5 is to replace "custodian" with "depository" in the 1994 Act, to update the terminology in line with European legislation and to align it with other domestic legislation funds, the EU having been consulted on the legislation.
The Minister for Finance, Deputy Donohoe, is the Minister responsible. There was no delegated authority to anybody else. The Minister for Finance is the person answerable for the legislation. All the correspondence regarding the Bill has been in his name.
As a former Whip who attended meetings of the legislative committee, they were attended by the Attorney General and the staff of the Office of Parliamentary Counsel. Any engagement on any Bill is between them and the Department. It is wrong to suggest that the office, as the drafters of legislation, engage with anybody. The office is the height of professionalism and carries out its work diligently. It was intimately involved in drafting this and other legislation and engaging with the relevant Department.
Garret Ahearn, Niall Blaney, Paddy Burke, Jerry Buttimer, Malcolm Byrne, Micheál Carrigy, Pat Casey, Shane Cassells, Lisa Chambers, Lorraine Clifford-Lee, Martin Conway, Ollie Crowe, John Cummins, Emer Currie, Paul Daly, Aidan Davitt, Regina Doherty, Aisling Dolan, Timmy Dooley, Mary Fitzpatrick, Robbie Gallagher, Seán Kyne, Tim Lombard, Vincent P Martin, John McGahon, Erin McGreehan, Eugene Murphy, Fiona O'Loughlin, Joe O'Reilly, Pauline O'Reilly, Ned O'Sullivan, Mary Seery Kearney, Diarmuid Wilson.
Section 6 makes reference to umbrella funds which are investment funds containing multiple sub-funds. The legal structure of an umbrella fund can be complex and generally consists of various feeder funds. A report was published this year in Luxembourg which found that umbrella fund structures can be used to distance a fraudulent master fund from end investors. Again, we come back to the key theme of the necessity of pre-legislative scrutiny. We do not have enough information on this issue. I must repeat the question I asked previously, that is, what role the former Minister of State and former Senator, Michael D'Arcy, played in drafting this section of the legislation.
Section 6 amends section 5(3) of the 1994 Act by changing "fair market value of the property" to "fair and appropriate value of the property" in order to track the language used in the EU directive on alternative investment fund management and its implementation. It also inserts the umbrella fund concept into the legislation, which is essentially one of the principal aspects of this Bill.
The setting up of any investment fund involves significant costs in terms of meeting legal and regulatory requirements, getting clearance at EU level as well as with the Revenue Commissioners and the Central Bank. There is a substantial amount involved. An umbrella fund means that instead of having to go through that process every time a new investment fund or sub-fund is created, the umbrella fund and all sub-funds under its control are all regulated by the Central Bank and all have to comply with the same Revenue rules. It means that a sub-fund can be established much more quickly under an umbrella fund that has already gone through the more extensive process at the beginning. I must stress that all such funds are fully regulated by the Central Bank. The reason this section is included in the legislation is to ensure that they are fully regulated by the Central Bank. This is part of the regulatory regime, to bring in sub-funds under an umbrella fund rather than every new investment fund having to commence the entire regulatory process again. The aim is to promote investment opportunities in Ireland.
I have explained what is in section 6 and what is relevant to that section. I am confining my comments to the contents of the section in response to a request for information from Senator Gavan. I am dealing with the sections and the amendments as we go through the legislation which is the appropriate approach in this House. We are dealing with the amendments and sections in front of us and that is what I propose to do.
I have answered the question thoroughly, although the Senator may not be satisfied with the answer. We are dealing with section 6 which deals with umbrella funds. I am dealing with the amendments to and sections of the legislation today and issues that are not part of those amendments or sections are outside the scope of this debate. I am sticking to the legislation that is before us today.
Garret Ahearn, Niall Blaney, Paddy Burke, Jerry Buttimer, Malcolm Byrne, Micheál Carrigy, Pat Casey, Shane Cassells, Lisa Chambers, Lorraine Clifford-Lee, Martin Conway, Ollie Crowe, John Cummins, Emer Currie, Paul Daly, Aidan Davitt, Aisling Dolan, Timmy Dooley, Mary Fitzpatrick, Robbie Gallagher, Seán Kyne, Tim Lombard, Vincent P Martin, John McGahon, Erin McGreehan, Eugene Murphy, Fiona O'Loughlin, Joe O'Reilly, Pauline O'Reilly, Ned O'Sullivan, Mary Seery Kearney.
I ask Members to observe the guidelines on social distancing. This Chamber is unique. There is no other one spot in the country where this many people are gathered. If anyone gets Covid-19 or symptoms of it, it will cause a problem for the whole House. I ask Members to be aware of the guidelines and to observe them.
I have a particular concern about section 7. I will probably table amendments to the section on Report Stage. My particular concern relates to the extension of section 6(4) of the Act of 1994, which will allow for the participation of limited partners on advisory committees. They will also be allowed to serve on boards and committees of investment limited partnerships and to appoint, elect or otherwise participate in the choice of representatives or any another persons to be on such a board or committee. They will also be allowed to act as a member of a board on a board or committee.
My concern about this section is that, in other parts of the Bill, limited partners are excluded from a lot of liability. This Bill effectively ensures that, in many cases, limited partners will be excluded from a wide range of both criminal and financial liabilities. We will discuss those liabilities later. The real concern is that this section would allow limited partners to serve on boards and committees that are making decisions, even though they will have less liability than other board members. This raises a question of responsibility. We are giving people power to take part in the business of these investment partnerships and to potentially influence and guide what general partners might do, but they will not share in the liability. It is an extension of the safe harbour provisions provided in other legislation for other reasons. The rationale for this needs to be looked at. Perhaps the Minister of State can clarify that rationale.
There is a real risk that we will end up with a nominal general partner who will hold and carry the liability while limited partners, who are excluded from liability, call the shots and steer and guide what happens in an investment limited partnership through their role as members of the board or their role in selecting those members. The Minister of State can see my concern. These people will have powers but not responsibilities. That is my concern and, for that reason, I will oppose section 7 of the Bill.
I acknowledge the Senator's contribution on the section. On the face of it, I understand why she would say everything she has just said, but there is more to it than that. As Senator Higgins has said, section 7 amends the 1994 Act to permit a limited partner to participate on boards and committees related to an investment limited partnership. This adds board participation to what might be called a "white list" of activities which, if undertaken by a limited partner, will be deemed not to be taking part in the conduct of the business and which will therefore not result in loss of liability for a limited partner. This list of activities includes serving on boards or committee of the investment limited partnership, choosing a person to serve on such a board, and making a decision to approve a change to the partnership agreement. It should be borne in mind that, to start with, the partnership agreement involves everybody coming together to agree a partnership. Any partner, limited or general, can make a request or recommendation at any stage to make changes to that partnership agreement. Others may not choose to approve such a change.Depending on the voting strength of those opposed, that might be the end of the matter. One cannot, however, prevent a partner in a partnership, even if only a limited partner, from suggesting changes to the partnership agreement. It may never happen, but he or she is entitled to suggest it.
This white list concept is common in most jurisdictions and is included in the Legislative Reform (Private Fund Limited Partnerships) Order 2017 in the UK, which clearly sets out the actions in which limited partners can participate. They can serve on a board in a consultative capacity and offer opinions but they have no role in the management of the partnership. They can be consulted and can have their say but they have no role in making decisions.