Investment Undertakings

Introduction

Section 58 Finance Act 2000 introduces 7 new sections and a Schedule into the TCA 1997 to make provision for a new tax regime for collective funds which are referred to in the Act as “investment undertakings”.

Prior to this amendment there were two tax regimes for collective funds - one in the IFSC which is a “transparent” regime, that is, there is no tax charged at the level of the fund, and the other regime in the domestic market under which an annual tax is charged on the income and gains of the fund.

Overview of new tax regime

From 1 April 2000 for new domestic funds and existing IFSC funds there is one tax regime - a tax regime which allows the fund to grow without an annual tax. Tax will only be payable when a payment is made out of the fund to a person who is resident or ordinarily resident in the State, subject to certain exceptions. The responsibility for paying the tax rests with the fund which must make a return to the Collector-General twice yearly. Existing domestic funds are treated as before - they will be liable to an annual tax on their income and gains.

Whether or not an investor is entitled to receive a payment from the fund gross is governed by a declaration procedure. Such declarations can be made by non-residents and by certain resident entities such as life assurance companies, charities and certain entities in the IFSC.

When tax is deducted from a payment made to an individual, the individual will have no further tax to pay. Where the payment is to an investment company or a financial trading company the net amount received will be grossed up and brought into the computation of profit and credit will be given for the tax deducted.