The following is for information and educational purposes only and does not represent specific investment or tax advice for an individual. Investors and their advisers should seek competent tax advice before considering any of the issues raised in this post.
This is an extremely complex and technical area where Irish Resident investors potentially meet complex issues of both Irish and International Taxation.
The correct tax treatment of an "international" fund such as an ETF and including certain Irish Domiciled Funds which are deemed by Revenue to be "Offshore Funds" is a particularly complex area of taxation which has suffered from lack of Revenue clarity on certain issues.
For example, until relatively recently, the correct tax treatment of US ETFS was not entirely clear in Ireland.
I have recently written a detailed white paper on the subject of the taxation of US Exchange Traded funds for Irish Resident Investors which highlights the risk of US Estate Taxes applying to these holdings (something many advisers seem to have been unaware of until I highighted it in the Sunday Times recently)
Some simple rules of thumb (with no absolutes)
If you invest through an Insurance Company like Irish Life - your taxes are taken care of by the fund accountant.
In almost every other circumstance (with a few technical exeptions) a tax payer must self- assess for taxation. If a fund is substantially the same as an Irish Unit linked fund (however it is held (with some exceptions)) then it will be subject to Gross roll up or exit tax at a rate of 41% currently appliable to both income and gains.
In most other circumstances (e.g. US ETFS) then it will be subject to income tax (at the investor's marginal rate of tax) and capital gains tax (currently 33%)
I mention exceptions and this is where things become even more complex.
For example I have some clients who are invested in "offshore funds" where the tax is automatically deducted at source by the fund administrator. So this is easier tax accounting than say investing in Rabo Funds or through a "fund platform" where investments are typically held in an Omnibus Account.
However, you can't achieve this outcome with ETFs.
Another extremely important point to note for Financial Brokers is that if you advise a client to purchase an offshore investment that is subject to self-assessment, then you are required to file a Form 8d with Revenue confirming the name and PPS number of the investor and the details of the fund purchased.
This is covered by Section 896 of the TCA 1997
Persons who should make this return
Any person carrying on a trade or business in the State in the ordinary course of the operations of which that person acts as an intermediary in, or in connection with, the acquisition of a material interest in an Offshore Fund or Foreign Life Policy.
Intermediary
An intermediary means any person carrying on in the State a trade or business in the course of operations of which that person provides relevant facilities.
Relevant Facilities
Relevant Facilities means:
the marketing in the State of Offshore Products,
the acting in the State as an intermediary in relation to the acquisition or disposal, in whole or in part, of Offshore Products by or on behalf of persons who are resident or ordinarily resident in the State, or
the provision in the State of facilities for the making of payments from an Offshore Product to persons who are entitled to the Offshore Product, whether on the disposal, in whole or in part of the Offshore Product, or otherwise.
Offshore Fund
An Offshore Fund is:
a company resident outside the State,
a unit trust scheme the trustees of which are not resident in the State, and
any arrangements, other than above, which take effect by virtue of the law of a territory outside the State and which, under that law, create rights in the nature of co-ownership.
Offshore Product
An Offshore Product means:
a material interest in an Offshore Fund, or
a foreign life policy.
Foreign Life Policy
Foreign Life Policy means a policy of assurance on the life of a person commenced:
by a branch or agency (carrying on business in a State other than the State) of an assurance company, or
by an assurance company (carrying on business in a State other than the State) other than by its branch or agency carrying on business in the State.
Penalties
Where an Intermediary fails:
for any chargeable period to make a return required to be made by the intermediary in accordance with Section 896(2) TCA 1997,
to include in such a return for a chargeable period details of any person to whom the intermediary provided relevant facilities in the chargeable period, or
to take reasonable care to confirm the details of the kind referred to in Section 896(2) TCA 1997, furnished to the intermediary by a person to whom the intermediary has provided relevant facilities in the chargeable period,
the intermediary shall in respect of each such failure be liable to a penalty of €1,900.
Where a person:
fails to furnish details of the kind referred to in Section 896(2) TCA 1997 to an intermediary who has provided the person with relevant facilities, or
knowingly or wilfully furnishes that intermediary with incorrect details of that kind,
the person shall be liable to a penalty of €1,900.