Tom Brabazon (Dublin Bay North, Fianna Fail)
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303. To ask the Minister for Finance if he will bring forward measures to change the tax treatment of exchange traded funds in view of the funds review published by his Department in October 2024; and if he will make a statement on the matter. [3229/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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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 tend to be tax opaque, which means that an investor in an ETF is not taxed on any income earned by, or gains accruing to, the ETF, but rather the investor is taxed on any distributions received or gains made on the disposal of the units in the ETF. This is not dissimilar to a shareholder in a company – the shareholder is not taxed on the profits of the company as they arise but rather on distributions received from the company or on any gain arising on a disposal of shares in the company.

There is no separate taxation regime specifically for ETFs. As collective investment funds, they 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. This response confines itself to the position for domestic ETFs and ETFs deemed ‘equivalent’ to a domestic ETF located in the EU/EEA/OECD.

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.

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.

While the funds review report included a number of regulatory recommendations in respect of ETF’s, it did not include a specific recommendation regarding their tax treatment.