Revenue Note for Guidance

739G Taxation of unit holders in investment undertakings

Summary

This section provides that an individual is not liable to any further tax on receipt of a payment from an investment undertaking, if tax has been deducted from the payment. If tax has not been deducted, the payment will constitute income of the individual. The section also provides for the various scenarios in which a payment is made to a company. However, where a company is not resident or an individual is neither resident nor ordinarily resident no tax liability arises in the State. Situations where the investment undertaking elects not to account for the appropriate tax on any gain arising on the ending of an 8-year period are also provided for.

Details

(1) Where the chargeable event is deemed to have happened on 31 December 2000, and in accordance with section 739D(8) a gain would be treated as arising to an investment undertaking in respect of a resident unit holder, that gain shall not be a gain of the investment undertaking, but rather the amount of the gain is treated as a chargeable gain accruing to the unit holder and is liable to capital gains tax at a rate of 40 per cent.

(2)(a) to (g) The tax treatment of payments to the various types of investors in investment undertakings is set out in summary form below —

Category of unit holder and payment	Was exit tax deducted from payment?	Treatment of payment in the hands of the unit holder
non-corporate/any payment	Yes	The net payment not reckoned in computing total income nor as giving rise to a chargeable gain.
non-corporate/any payment	No	Payment treated as an amount of income chargeable to tax under Case IV of Schedule D but, where the payment is in respect of the disposal of units, the cost of the units concerned is deducted. The tax rate applicable is the same as if the payment were from an EU fund as per Chapter 4 of this Part.
investment corporate/relevant payment	Yes	Net payment treated as a net amount of an annual payment (chargeable to tax under Case IV of Schedule D) from the gross amount of which tax at the relevant rate (see Table 1(a) in section 739E) has been deducted.
investment corporate/relevant payment	No	Payment treated as income chargeable to tax under Case IV of Schedule D.
investment corporate/not a relevant payment	Yes	Payment not otherwise taken into account for tax purposes.
investment corporate/not a relevant payment	No	Payment treated as income chargeable to tax under Case IV of Schedule D but, where the payment is in respect of the disposal of units, the cost of the units concerned is deducted.
trading corporate/section 110 company	Yes/No	The amount of the payment (and where exit tax is deducted the gross amount) is treated as income; but, where the payment is in respect of the disposal of units, the cost of the units concerned is deducted; and a credit is given for exit tax (if any) deducted from the gross payment.

(2)(h) Where a unit holder in an investment undertaking is —

a non-resident company, or
neither resident or ordinarily resident in the case of a non-corporate unit holder,

then the unit holder is not chargeable to income tax or capital gains tax on any payment made to the unit holder by the investment undertaking. Where such a non-resident unit holder receives a payment, on the transfer by way of sale or otherwise of entitlement to a unit, other than from the investment undertaking (e.g. where units are traded on a stock exchange), the unit holder is not chargeable to income tax or capital gains tax on such payment.

(2)(i) & (j) Apart from where errors are being corrected in accordance with section 739F(5), a repayment of tax deducted by an investment undertaking can only be made by Revenue where the unit holder in question is entitled to claim income tax exemption under section 189, 189A, 192 or 205A.

In such a situation the payment to the unit holder by the investment undertaking is treated as a gross amount from which the exit tax has been deducted and that gross amount is treated as an amount of income chargeable to tax under Case III of Schedule D.

(2A) Any gain arising on the ending of an 8-year period, where section 739E(2) does not apply by virtue of section 739E(2A) (i.e. where the investment undertaking has elected not to account for the exit tax), will be chargeable under Case IV of Schedule D at the relevant rate specified in Table 1 within section 739E. The gain will not be reckoned in computing total income and there will be no entitlement to the age exemption limit or the various tax allowances, reliefs and credits.

(3) Where units in an investment undertaking are held in a recognised clearing system then a chargeable event cannot occur in relation to such units and therefore no exit tax can be applied. However, references in subsection (2) to situations where appropriate tax has not been deducted from a payment to a unit holder include situations where payments are made to unit holder in respect of units held in a recognised clearing system.

(4) Some investment undertakings use a foreign currency as their operational currency. Investors purchase units in and receive payments from those investment undertakings in that currency. Any foreign exchange gain/loss on the amount invested by a unit holder is a capital gain of the unit holder.

(5) Under section 104 of the Capital Acquisitions Tax Consolidation Act 2003, where inheritance tax is charged in respect of property on an event happening and the same event constitutes the disposal of an asset for capital gains tax purposes, any resulting capital gains tax paid is allowed to be deducted from the net gift or inheritance tax as a credit. On a disposal/transfer of units resulting from the death of the unit holder exit tax will generally be payable. That amount of tax is treated as an amount of capital gains tax for the purposes of section 104 of the Capital Acquisitions Tax Consolidation Act 2003.

Relevant Date: Finance Act 2019