Pearse Doherty (Donegal, Sinn Fein)
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267. To ask the Minister for Finance the categories of exchange-traded funds that are subject to the deemed disposal; the category of exchange-traded funds that are exempt; and if he will make a statement on the matter. [13269/25]

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 usually an investment fund whose units are held in a recognised clearing system and are traded on a regulated stock exchange, although the name ETFs may also be used to describe certain funds whose units are sold over the counter (“OTC”). A typical ETF can be compared to a tracker fund in that it will seek to replicate a particular index.

There is no separate taxation regime 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.

Irish domiciled ETFs

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. Instead, exit tax arises in respect of payments made to certain unit holders in that fund or on the sale of units by those unit holders. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years. The taxable gain arising on the 8-year deemed disposal (the chargeable event) is the value of the units at the time less the amount invested.

Exit tax applies at a rate of 41% in respect of Irish resident individual investors (unless the fund is a Personal Portfolio Investment Undertaking in which case tax at 60% applies), and 25% in respect of Irish resident corporate investors. For individual investors, USC does not apply and PRSI may apply.

Where the units in an Irish domiciled ETF are bought and sold on a stock market (i.e. quoted) and cleared through a recognised clearing system, the investor must account for the tax through the self-assessment system. Where the units in the ETF are not quoted and cleared, the fund must remit the exit tax to Revenue.

EU /EEA and OECD domiciled ETFs

As regulated funds located in other EU/EEA countries are subject to the same regulation as Irish funds, the tax treatment of an investment made in such a fund is similar to that which applies in respect of an investment made in an Irish domiciled ETF.

Investments in funds located in other OECD member states, where the fund is substantially similar to an Irish fund, are also taxed on a similar basis to investments in Irish funds.

For an ETF which is domiciled in the EU/EEA or in another OECD member state, but which is not substantially similar to a domestic Irish fund, the applicable tax treatment in respect of income and gains arising will follow the general principles of tax. That is, any income payments will be subject to income tax at the standard (20%) or higher (40%) rate, as appropriate, or corporation tax at 25% for corporate investors. For individual investors, USC and PRSI may apply. Gains on disposals will be subject to capital gains tax (CGT) at 33%.

An EU/EEA or OECD domiciled fund cannot apply Irish exit tax. Therefore, Irish investors are required to account for this tax through the self-assessment system.

ETFs domiciled outside EU/EEA/OECD member states

Funds that are not located in an OECD member state, or the EU/EEA, are taxed differently depending on whether they are distributing or non-distributing funds.

There is no 8-year deemed disposal for these other offshore funds.

Broadly, a distributing ETF is one that distributes its profits to its unit holders from year to year, and it is certified by Revenue as a distributing fund. The list of distributing funds approved by Revenue is published on the Revenue website at: www.revenue.ie/en/companies-and-charities/documents/list-distributing-offshore-funds.pdf

Investments in distributing ETFs are taxed as follows:

• income payments from a distributing offshore ETF are subject to income tax under the general principles of taxation. USC and PRSI may therefore be applicable.
• gains arising on disposals are subject to CGT at a rate of 40%.

• income payments are subject to income tax under the general principles of taxation. USC and PRSI may be applicable.
• gains arising on disposals of investments in a non-distributing ETF are charged to income tax under Case IV. Although these disposals are charged to income tax, the amount of the gain on the disposal is calculated according to general CGT rules. USC and PRSI may be applicable.