Cian O'Callaghan (Dublin Bay North, Social Democrats)
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296. To ask the Minister for Finance the rational for the discrepancy between the rate of capital gains tax and the taxation rates on gains made from exchange-traded funds; and if he will make a statement on the matter. [32474/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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An exchange traded fund (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. There is no separate taxation regime specifically for ETFs. 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. This response confines itself to the position for domestic ETFs and ETFs deemed ‘equivalent’ to a domestic ETF located in the EU/EEA/OECD.

Capital gains tax (CGT) is paid on the chargeable capital gain made when you dispose of an asset. The chargeable gain is usually the difference between the price you paid for the asset and the price you disposed of it for. CGT is payable by the person making the disposal. The current approach to CGT in Ireland is a flat rate of 33% for all gains, together with a range of targeted reliefs including principal private residence relief, retirement relief and revised entrepreneur relief.

For domestic ETFs and ETFs deemed ‘equivalent’ to a domestic ETF located in the EU/EEA/OECD, the domestic funds regime applies. Under the domestic fund regime, 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. For ETFs while the fund is not required to apply an exit tax, the Irish resident unit holder will be subject to tax on income and gains arising and must self-assess and include details of income and gains in a timely filing on their income tax return to Revenue.

It is important to note that capital gains tax (CGT) and the taxation of EFTs are separate and apply in different circumstances. CGT generally relates to the disposal of a specific asset. ETFs make multiple disposals of assets over the lifetime of the fund which are not individually taxed, but the overall gains and income of the ETF are considered as part of the ‘gross roll up’ regime.

In summary where an Irish resident individual invests directly in a company by acquiring shares rather than investing in an ETF, any income payments received (dividends) are subject to income tax at the individual’s marginal rate and gains from the disposal of shares are subject to CGT. Where an individual has invested in a domestic ETF, the gross roll-up regime applies and there is no annual taxation of the income and gains of the fund, but taxation applies in certain circumstances including a deemed disposal every 8 years.

The taxation of investments was considered under the Funds Review recently conducted by my Department. In October 2024, my predecessor published the ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’, a wide-ranging review of the funds and asset management sector. This report sets out a series of recommendations to ensure that, in pursuit of continued growth in the funds and asset management sector, Ireland’s funds sector framework remains resilient, future-proofed, supportive of financial stability and a continued example of international best-practice. Recommendations 22 and 23 of the Fund Review Report include consideration of the removal of the eight-year deemed disposal requirement for Irish domiciled funds and life products and alignment of tax rates across different investment choices.

The 2025 Programme for Government has committed to progress and publish an implementation plan for consideration in Budget 2026 taking into consideration the Funds Review recommendations to unlock retail investment and opportunities to grow this sector in Ireland. This is a complex area of taxation that encompasses a wide breadth of tax legislation on domestic funds, life assurance products and offshore funds. Detailed consideration is therefore being given to the best way to bring about the necessary reforms and to support a greater level of retail investment in capital markets. It is likely given the breadth of the Funds Sector 2030 review that the delivery of any agreed associated tax measures will take place over multiple Finance Bill cycles. This work will also take account of developments at an EU level in respect of the Savings Investment Union.