506 Nominees and designated funds

Summary

This section provides for shares to be subscribed for by an individual through a nominee or a designated fund. Relief is available to the individual on whose behalf the nominee is acting. Relief is also available by investing through a designated fund approved by the Revenue Commissioners. The section sets out certain general rules which must be complied with in order for a fund to be a designated fund.

Details

Nominee shareholders

(1) Shares issued by a company and registered in the name of a nominee are treated for all the purposes of this Part as if the shares were registered in the beneficial owner’s name. All acts of the nominee in relation to such shares are treated as acts of the beneficial owner.

Designated funds

(2) Relief is only to be given where a subscription for eligible shares is made as nominee for an individual by the manager of an investment fund “designated” by the Revenue Commissioners and the minimum subscription amount of €250 laid down in section 490(1)(a) is not to apply in such circumstances.

Consultation

(3) The Revenue Commissioner may consult with any person or body of persons which they consider might be able to assist them in “designating” a fund for the purpose of the relief and subject to such conditions as they think proper they may designate an investment fund for the purposes of this Part.

Withdrawal of designation

(4) The Revenue Commissioners may by notice in writing withdraw the designation given to an investment fund. In such circumstances the fund will cease to be a designated fund as and from the date such notice is published in Iris Oifigiúil.

Certificates

(5) Where a designated fund has subscribed for eligible share as nominee for an individual, the certificate from the company required by section 501(2) to accompany a claim for relief must be made by the company to the fund managers. The taxpayer must send with his/her claim for relief a certificate from the managers, in a form authorised by the Revenue Commissioners, certifying that the managers hold the company’s certificate under section 501(2) for the eligible shares in question.

Returns

(6) The managers of a designated fund must furnish, if required by notice to do so by an inspector or other Officer of the Revenue Commissioners, a return of all eligible shares for which they issued certificates in accordance with subsection (5) in the year of assessment to which the return relates.

Penalties

(7) Section 501(6) which provides for penalties for companies who issue certificates fraudulently or negligently, does not apply in relation to a certificate issued by a manager of a designated fund for the purposes of subsection (5). Thus, responsibility for a false certificate issued by a company to an investment fund rests with the company and is not passed on to the managers who issued a certificate based on the company’s certificate.

Conditions for designation

(8)(a)(b) Guidelines are set out in the form of rules which must be followed in relation to investment funds if the shares subscribed for through such funds are to attract relief under this Part. These rules do not prejudice the general terms of subsection (3) in regard to such consultation by the Revenue Commissioners as they consider might assist them in designating a fund. The fund must be established under irrevocable trusts and be for the sole purpose of enabling “qualifying individuals” (section 492) to invest in “eligible shares” (section 488(1)) of a “qualifying company” (section 494). The same conditions which are applied to direct investors under other sections of this Part, apart from the minimum investment provided for in section 490(1)(a)), apply to investors who invest through a designated investment funds. It must be emphasised that these rules, with the exception of the final one have been included in the scheme solely for the protection of investors and not with a view to limiting the relief. If the final rule were not made, a participant could avoid the minimum subscription laid down by section 490(1)(a) by investing through a fund and then having the shares transferred into his/her own name.

(8)(b) The terms of the trusts under which the investment funds are established must provide that —

• (8)(b)(i) all of the fund is to be invested in eligible shares, without delay,
• (8)(b)(ii) the fund subscribes exclusively for shares which will entitle the participants to relief,
• (8)(b)(iii) money subscribed to the fund must, while awaiting investment, be placed on deposit in a separate account in a licensed bank in the State,
• (8)(b)(iv) interest or dividends received by the fund must be paid over without undue delay to the participants – the rate of management fees must be stated in the trust deed establishing the fund,
• (8)(b)(v) management expenses and other expenses incurred in connection with the setting up of the fund, the winding down or termination of the fund must not exceed the rate specified in the trust deed establishing the fund,
• (8)(b)(vi) audited accounts of the fund are submitted to the Revenue Commissioners each year as soon as possible after the end of the period for which the accounts are made up,
• (8)(b)(vii) managers or trustees, or their associates, are not connected either directly or indirectly with any company whose shares have been subscribed for by the fund,
• (8)(b)(viii) any discounts on shares purchased by a fund are passed on to the participants only,
• (8)(b)(ix) the fund should be open for participation up to a stated limit date and that the closing date for the receipt of monies from participants should be before the making of any investment by the fund,
• (8)(b)(x) if the fund has a maximum limit or if a minimum amount is required from a participant, any subscriptions not accepted are to be returned without delay,
• (8)(b)(xi) the shares subscribed for on behalf of a participant remain in the names of the fund managers as nominees until 3 years have passed since the shares were issued to the fund.

Nomination of officer

(9) The Revenue Commissioners may nominate an inspector or other officer to perform acts and discharge functions under this section.

Relevant Date: Finance Act 2019