New Irish investment vehicle takes on Luxembourg

IRELAND – Tax legislation for a pensions investment pooling vehicle has been passed by the Dail, the Irish parliament, as a new category of investment fund. Included in this year’s Finance Act, the vehicle is designed to provide tax transparency to pension funds using it.

“This is a new vehicle set up under contract law, rather than using a company or unit trust structure,” says Mairead O’Connor, tax manager with global accountancy firm PriceWaterhouseCoopers(PWC), in Dublin. The Finance Act explicitly states that the vehicle is transparent for tax purposes.

The aim is that a pension fund pooling investments in the vehicle would still be able to access its own jurisdiction’s double taxation treaty (DTA) with the country in which the investments are being made. “So if a UK pension fund was using this vehicle to invest in US markets, because of the vehicle’s transparency, it would still be able to access UK-US DTAs. In effect, the Irish fund structure is disregarded for this purpose.”

The legislation also restricts the application of the pooling vehicle to pensions funds or to trustees and custodians holding pensions assets. The pooling structure will mirror the Fonds Commun de Placement structure familiar on the continent, which up to now has not been included in the Irish investment fund laws, providing for investment companies, unit trusts and partnerships. “It is the contractual nature of the arrangement that provides the transparency,” says O’Connor.

Initially, the pooling vehicle will be required to be established under the provisions of the European Union’s Ucits regulations under the terms of the Finance Act legislation. However it is envisaged that non-Ucits vehicles of this category may be introduced in the future.

The Department for Enterprise, Trade and Employment, in Dublin, which is responsible for regulations in this area, confirms it has recently received a proposal in this regard. These proposed amendments to the Ucits regulations are being examined in consultation with the Central Bank of Ireland. It is anticipated such a vehicle could be introduced shortly, says the Department.

Explaining the background to the new pooling vehicle, Brendan Logue of the Industrial Development Authority in Dublin says the initiative was taken because Ireland felt the need to “raise its profile” on the pensions front to meet the challenge of Luxembourg.

The IDA undertook market research among multinational groups about what they would like by way of pensions arrangements. “They told us they want to do the same with their pensions arrangements as they already have done with insurance and risk management, with treasuries and call centres, in other words to centralise and specialise in order to cut costs.”

They find the pensions area immensely frustrating, says Logue. “They talk of the horror story of operating in multiple jurisdictions, dealing with multiple asset managers, custodians and administrators.” The issue of mobile employees and having flexible arrangements for them is a major one. “The pensions related aspects of this is very expensive for them.”

These multinational employers are looking for a solution, says Logue, which no one is providing. So the Irish authorities looked at pooling vehicle structures and developed one that did not have the characteristics of a corporate entity. “It has the characteristics of an agreement, which confers tax transparency on the investment process.”

By pooling in such a vehicle transparency across border becomes much more of a reality, he says. “We are hoping this development will advance our competitiveness vis-à-vis Luxembourg.”

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