Pearse Doherty (Donegal, Sinn Fein)
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158. To ask the Minister for Finance his views on the bespoke legal structures in place here for some investment funds that are being used by funds that are not tax liable and do not employ significant workers here; and if he will make a statement on the matter. [18268/17]

Michael Noonan (Limerick City, Fine Gael)
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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 then taxed at the level of the investor rather than the fund, as is standard international practice. 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) as the investor will pay tax as appropriate in the investor's country of residence or establishment. Most OECD countries now have a tax system that provides for neutrality between direct investments and investments through a Collective Investment Vehicle or Fund.

The essence of the regime is that there is no tax on the income and gains accruing to the fund but that an exit charge is imposed on chargeable events, i.e. payments to certain unitholders as distributions of income/capital gains and on gains realised by them on disposal of their units. 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 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. Where the investor is not resident/ordinarily resident in Ireland no exit tax should be deducted provided appropriate declarations are in place.

Irish resident investors subject to the exit tax are also subject to an 8 year deemed disposal rule. If an Irish resident investor has invested in a fund, then every 8 years exit tax arises in respect of that investor. This prevents open ended funds rolling-up their profits indefinitely and ensures that the tax deferral cannot be indefinite.

I want to state that Ireland's corporate tax policies are designed to attract real and substantive operations to Ireland. We only want real and substantive FDI, the kind that brings real jobs and investment. Ireland has not been and will never be a brass plate location.

The OECD has made a series of recommendations, as part of the BEPS process, which are designed to give tax authorities the tools necessary to ensure that profits are correctly attributed to the country where the economic activity which generates them takes place. The BEPS recommendations will greatly enhance the ability of participating countries to ensure the correct alignment of tax and substance and Ireland is playing its part in the implementation of these recommendations. Ireland has been a strong supporter of the BEPS project and I believe it is the best approach for dealing with aggressive tax planning. Ireland will now play an active part in the work to implement the BEPS recommendations globally. The post-BEPS environment will see companies seek to better align the amount of tax that they pay with their substantive operations. The alignment of substance with a competitive rate of tax has long been the cornerstone of our corporation tax policy.

Pearse Doherty (Donegal, Sinn Fein)
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159. To ask the Minister for Finance the consideration that has been given to the introduction of a levy on funds based on the Luxembourg model; and if he will make a statement on the matter. [18269/17]

Michael Noonan (Limerick City, Fine Gael)
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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, as is standard international practice. The 'Gross Roll Up' regime is the term applied to the mechanism whereby investment funds are not subjected to taxation on their income and gains within the fund. That allows the income of the fund to 'roll up' on a gross basis within the fund. The fund may thus grow without deductions for taxation. The fund may, however, suffer withholding taxes on its income or gains and is investors will pay tax as appropriate in the investor's country of residence or establishment. I believe that this is a more appropriate model for taxing funds rather than through a levy.

The broad rationale for exempting such funds from direct taxation at fund level 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.

Ireland is one of the leading jurisdictions in the world for the establishment and servicing of internationally distributed investment funds. The international funds industry employs over 13,000 people in Ireland. It is a major element of the International Financial Services (IFS) industry which employs over 38,000 people in the State.

In the Finance Act 2016 I introduced the Irish Real Estate Fund (IREF) regime to address the issue of non resident investors, who had been investing in Irish property through fund structures. An IREF is an investment undertaking in which 25% or more of the value of the assets is derived from IREF assets or where it is reasonable to consider the main purpose or one of the main purposes of the investment undertaking is to acquire IREF assets or to carry on IREF business. The IREF must deduct a 20% withholding tax on certain property distributions.