Progress Update: Responses to the Public Consultation December 2023
193 submissions - 140 of them from individuals.
193 submissions - 140 of them from individuals.
2. Taxation of investment products
2.1 Overview
The majority of submissions received addressed the questions posed on the taxation of investment products. Of the 140 responses submitted by private individuals, a considerable number of these were concerned exclusively with taxation. More specifically, many submissions by private individuals referred to the taxation regime for Exchange Traded Funds (ETFs). The submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. These views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds.
2.2 Issues raised in submissions
There was a broad consensus from those that submitted a response to the public consultation that the taxation of investment products was overly-complex and in need of reform. Both industry and individual respondents highlighted the benefits, to investors and to the real economy, of increasing retail participation in capital markets . The following issues were consistently raised as impediments to increasing levels of retail investment:
The complexity of the taxation regime for investment products with different tax treatments applying depending on product, domicile and tax residence
The challenges of administering the deemed disposal regime (for both industry and, in the case of ETFs, the individual retail investor)
The tax treatment for Irish investors investing in Irish ETFs Many respondents also highlighted concerns that investment decisions by Irish investors are largely driven by tax considerations rather than the individualneeds of the investor. Others offered the view that the complexity of the taxation of investment income and gains in Ireland is likely to make compliance a significant challenge for retail investors.
2.3 Proposals raised in submissions
A significant number of changes to the tax regime were suggested by both industry and individual respondents. Many of these focused on the need to simplify and harmonise the taxation of investment funds. However, the scope and ambition of the suggested changes ranged conside rably, from a reimagined system of taxation for investment products to discrete and specific amendments to tax legislation. Among the proposals raised most frequently were:
Reform the Investment Undertakings Tax (IUT) regime
o Abolish the 8-year deemed disposal rule
o Move IUT from deduction at source to a self-assessed basis
o Provide for loss relief under the IUT regime
Introduce a reduced IUT rate for investments in ESG projects
Reform the taxation of ETFs
Align the tax rates applying to savings and investment products
Develop a tax-free/tax-advantaged retail savings and investment product
The Funds Review Team will consider further progress updates, consultations and industry events as we continue to progress in our work to report to the Minister for Finance by summer 2024. The submissions received will be published at a later stage in the Review process.