Brendan Howlin (Wexford, Labour)
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289. To ask the Minister for Finance his plans to review the taxation of index funds and ETFs; if the periodic taxation of ETFs is to be maintained; and if he will make a statement on the matter. [21807/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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Index funds and Exchange Traded Funds (ETFs) are types of investment funds and are generally traded on a regulated stock exchange. 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 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).

When a fund pays an amount out to an investor it triggers a ‘chargeable event’. There is a charge to tax on Irish residents on the happening of a chargeable event. In addition, a rule applying a deemed disposal every eighth year was introduced in 2006. The purpose of the deemed disposal rule is to prevent the indefinite deferral of tax within the fund. When an actual disposal of an investment subsequently occurs, a tax credit is given for the tax paid on the deemed disposal event.

Income and gains arising from investments into Irish and EU domiciled ETFs are subject to income tax at a rate of 41% on a self-assessment basis. Such income and gains are not subject to Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) liabilities.

The 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.

There are no plans to review the taxation of such funds at this time.