Paul Kehoe (Wexford, Fine Gael)
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203. To ask the Minister for Finance if there is any consideration being given to the removal of deemed disposal tax (details supplied) as deemed disposal makes it extremely difficult for ordinary people to invest in the stock market, giving very few options to protect or grow wealth; and if he will make a statement on the matter. [7982/23]

Michael McGrath (Cork South Central, Fianna Fail)
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As the details supplied by the Deputy refer to the applicability of the 8 year deemed disposal rule in relation to Exchange Traded Funds, this answer is provided in that context.

The term “Exchange Traded Fund” or “ETF” is a general investment industry term that refers to a wide range of investments. ETF investments can take many different legal and regulatory forms even where they are established within the same jurisdiction.

An ETF is an investment fund that is traded on a regulated stock exchange. A typical ETF can be compared to a tracker fund in that it will seek to replicate a particular index.

ETFs, being collective investment funds, generally come within the regimes set out in the Taxes Consolidation Act 1997 for such funds. The domicile of the ETF will generally determine the applicable fund regime, specifically whether the ETF falls within the domestic fund regime or the offshore fund regime.

Where the domestic fund regime applies, a ‘gross roll-up’ applies such that there is no annual tax on income or gains arising to a fund but the fund has responsibility to deduct an exit tax in respect of payments made to certain unit holders in that fund. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years. Where the offshore fund regime applies, the applicable tax treatment depends on the location and nature of the fund.

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. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, liability to tax on gains from the fund will be determined in their home jurisdiction.

To assist taxpayers in determining the appropriate tax treatment for investments in ETFs, Revenue has published guidance which is available at www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-03.pdf.

It is worth noting that, as part of his Budget 2023 speech, my predecessor announced the intention to establish a working group to consider the taxation of funds, life assurance policies and other investment products. Specific detail on the parameters of such a review and timelines are still being worked out and once a thorough consideration of the matter takes place, I will share the terms of reference in due course.