Revenue have published an update to Part 27-04-01 which concerns the criteria for establishing whether an investment if subject to the Exit Tax or not
Have to say it is as clear as mud to me
Have to say it is as clear as mud to me
Revenue publish updated note on ETFs
- Thread starter jpd
- Start date
The guidance has been updated to include a non-exhaustive list of general legal and regulatory criteria that should be considered to assist in establishing whether the threshold of “similar in all material respects” is net when determining the equivalent nature of an offshore fund to its Irish counterpart.
The criteria in the guidance is cast in extremely broad terms and, in my opinion, it makes it increasingly challenging to maintain an argument that a US ETF that is registered with the SEC is not “equivalent” to an ETF that is authorised as an Irish UCITS.
Others might take a different view.
The criteria in the guidance is cast in extremely broad terms and, in my opinion, it makes it increasingly challenging to maintain an argument that a US ETF that is registered with the SEC is not “equivalent” to an ETF that is authorised as an Irish UCITS.
Others might take a different view.
Flybytheseat
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Cant understand why revenue just dont treat all ETFs like shares with gains subject to CGT and dividends (payouts not accumulated) treaded as income. Would make life easy for everyone and the taxman would still be happy.
Nope.
To be honest, I don’t think there is any real need to provide clarity on the tax treatment of UK investment trusts - they have always been subject to income tax/CGT.
AAAContributor
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I had come to the same conclusion you did above. My interpretation was that Revenue, by revoking their 2015 guidance that stated that US ETFs were taxed under general tax principles, were trying to bring foreign collective schemes under the offshore fund rules. If an offshore fund is registered with the SEC, it would be hard to argue that it is not similar to a UCITS.
However, if I look closer at the legislation:
No 39 of 1997, Section 747B, Interpretation and application.
Interpretation and application.
www.charteredaccountants.ie
specifically s747B(2A),
it states that "this Chapter" (i.e. the offshore fund rules - tax @ 41% on distributions and 41% on gains) "does not apply to an offshore fund other than an offshore fund which -
is similar.....to an investment limited partnership [s747B(2A)(a)(ii)];
is authorised....under UCITS [s747B(2A)(b)] (note: does not say that it is similar to a UCITS authorisation);
is similar......to an authorised investment company [s747B(2A)(c)(ii)];
is similar......to an authorised unit trust scheme [s747B(2A)(d)(ii)]."
My initial reading of this legislation was that if the US ETF is registered with the SEC, is that not equivalent/similar to a fund authorised under the UCITS Directive?
But, my current reading is that if an offshore fund is not authorised under UCITS (which a US ETF isn't), then you need to assess if it is "similar" to the 3 other structures (investment limited partnership, authorised investment company and authorised unit trust scheme).
The Tax & Duty Manual referred to earlier says that an equivalent fund is one that is similar to the 3 structures or a UCITS (not similar to a UCITS).
Whether a fund is similar to a UCITS does not seem to me to be relevant but would be interested to hear of opinions on this.
fistophobia
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This document is not useful to retail investors. More likely it's so Revenue can quote from it, to dispute ones tax return. These products are meant to be user-friendly, with KIIDs to explain to punters in baby language. They don't want people investing in ETFs, that's what I think.
Yes as @Duke of Marmalade said it's basically a stitch up between revenue and the financial guys to scare people away from ETFs, that way the financial guys benefit because ordinary investors have to buy their services in order to navigate this , and the revenue benefit because the financial guys do all the taxation returns rather than thousands of individual returns that revenue would then have to look into themselves. They don't have the manpower or even the expertise to do this themselves
Sophrosyne
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Surely you mean that many individual investors do not have the expertise.
You need to go back and look at the discussions between Revenue and the tax institute.
In December 2021 a brief circulated as follows
“The Institute has been engaging with Revenue regarding the potential issues for taxpayers arising from the withdrawal of the guidance which had been in place for ETFs. Revenue confirmed at a meeting of the TALC Direct and Capital Taxes Sub-Committee this week that where the 8-year deemed disposal rule now applies to an ETF purchased prior to 1 January 2022, the clock does not begin to run for the purposes of the 8-year deemed disposal rule until 1 January 2022. The Institute will update members via TaxFax on any further clarifications received on the guidance”
Specifically
“Revenue noted that e-Brief 164/21, issued on 1 September 2021, provided notification of the key updates to the relevant TDMs.
Practitioners queried how the updated guidance, which stated that previous Revenue confirmations in respect of the treatment of ETFs would no longer apply from 1 January 2022, would impact someone acquiring an interest in an ETF in 2020 or 2021. Revenue noted that the updated guidance will only apply as of 1 January 2022.
Practitioners further queried whether there had been any updates to the guidance to assist advisors in determining which treatment would apply to investment products. Revenue confirmed that the recently published TDMs had been updated to provide general guidance on ETFs and ETCs in as far as possible, but that there was very little assistance that Revenue could provide to simplify such a complex area of legislation, and that each product is unique and needs to be considered on its own merits.
Practitioners referred to the submission made in July, and Revenue noted that the suggestions therein didn’t have general applicability and that absent a complete overhaul of the offshore funds regime, there was no way of simplifying the tax treatment for investors or advisors. Revenue further noted that the manual is intended to be a general guide, and that the submissions in respect of the remittance basis and how it could apply to offshore funds would not be addressed in this TDM.
It was agreed that this item would remain on the agenda and Revenue encouraged submissions relating to areas where TDMs could be updated to provide additional general guidance.”
This latest update simply clarifies some considerations that practitioners should take into account when “each product is considered on its own merits.”
So, again, nothing has “changed” we are back in the regime that applied prior to the issue of the “original” revenue Ebrief that came out in the foot of my Sunday Business Post article “a fair exchange”
“
While the rest of the world is ploughing money into the ETFs and enjoying the benefits, Irish investment managers are currently struggling to get a straight answer from the Revenue Commissioners on just how the proceeds will be taxed.
Specifically, there is no clarity over whether gains from ETFs outside the European Union – of which there are hundreds – will be eligible for the 41 per cent exit tax usually levelled on funds, or whether the lower 33 per cent capital gains tax will apply, as is the case with normal gains from share disposals.
Marc Westlake, who relocated from Britain to Ireland several years ago, was gobsmacked when he saw how arcane the tax authorities here are when it comes to dealing with investments.
“I was staggered at how inconsistent and complicated Ireland is from an investment point of view, once you step outside pensions. In the Irish situation, something as simple as an ETF becomes probably the most complicated thing I’ve ever dealt with in 23 years,” he said.
...
Sources in the investment community said that efforts by some of the larger fund managers based in Ireland to convince the Revenue Commissioners to provide clarity on the issue had proved fruitless so far.
...
“We looked for clarity on this from the Revenue. The most concrete thing we got back from them was: ‘You could look at it that way if you wanted to’. You couldn’t get less committal if you tried.”
A Revenue spokesperson said ETFs were a “complex and specialist area”.
“The Revenue has no wish to be opaque in any respect in setting out the specifics of the law in this matter and we regret that any potential investor in ETFs may have had an unsatisfactory experience in seeking to clarify the relevant tax treatment,” she said.”
That regime requires a forensic analysis of the prospects of a particular investment fund and arguments need to be put forward why a particular fund is not “materially the same as an Irish fund”
The key point I believe is this “there was very little assistance that Revenue could provide to simplify such a complex area of legislation,”
Revenue are admitting that they themselves cannot provide guidance because this is so complicated and
“absent a complete overhaul of the offshore funds regime, there was no way of simplifying the tax treatment for investors or advisors”
Arguably that’s the real answer here. Fix the legislation and make it so that it is easier to administer and file.
Unless that happens it’s my belief that a lay person is unable to confidently file their taxes because they will not have conducted the necessary analysis of the prospectus.
You simply cannot rely on an anonymous post on askaboutmoney as the basis of your argument for why you have elected a certain tax treatment for a particular investment.
If a sufficiently large number of tax payers were to submit their tax returns with an expression of doubt it might force a positive change.
The purpose of an Expression of Doubt is to indicate to Revenue a genuine doubt about the application of law or, the treatment for tax purposes of any matter contained in the return. Arguably by revenue’s own admission that is the case here.
You should not do this lightly however as you are literally asking Revenue to take a closer look at your tax return. But in doing so they will have to address this. They themselves have admitted that this is very complex and clearly don’t want thousands of tax returns to deal with.
www.everlake.ie
In December 2021 a brief circulated as follows
“The Institute has been engaging with Revenue regarding the potential issues for taxpayers arising from the withdrawal of the guidance which had been in place for ETFs. Revenue confirmed at a meeting of the TALC Direct and Capital Taxes Sub-Committee this week that where the 8-year deemed disposal rule now applies to an ETF purchased prior to 1 January 2022, the clock does not begin to run for the purposes of the 8-year deemed disposal rule until 1 January 2022. The Institute will update members via TaxFax on any further clarifications received on the guidance”
Specifically
“Revenue noted that e-Brief 164/21, issued on 1 September 2021, provided notification of the key updates to the relevant TDMs.
Practitioners queried how the updated guidance, which stated that previous Revenue confirmations in respect of the treatment of ETFs would no longer apply from 1 January 2022, would impact someone acquiring an interest in an ETF in 2020 or 2021. Revenue noted that the updated guidance will only apply as of 1 January 2022.
Practitioners further queried whether there had been any updates to the guidance to assist advisors in determining which treatment would apply to investment products. Revenue confirmed that the recently published TDMs had been updated to provide general guidance on ETFs and ETCs in as far as possible, but that there was very little assistance that Revenue could provide to simplify such a complex area of legislation, and that each product is unique and needs to be considered on its own merits.
Practitioners referred to the submission made in July, and Revenue noted that the suggestions therein didn’t have general applicability and that absent a complete overhaul of the offshore funds regime, there was no way of simplifying the tax treatment for investors or advisors. Revenue further noted that the manual is intended to be a general guide, and that the submissions in respect of the remittance basis and how it could apply to offshore funds would not be addressed in this TDM.
It was agreed that this item would remain on the agenda and Revenue encouraged submissions relating to areas where TDMs could be updated to provide additional general guidance.”
This latest update simply clarifies some considerations that practitioners should take into account when “each product is considered on its own merits.”
So, again, nothing has “changed” we are back in the regime that applied prior to the issue of the “original” revenue Ebrief that came out in the foot of my Sunday Business Post article “a fair exchange”
“
While the rest of the world is ploughing money into the ETFs and enjoying the benefits, Irish investment managers are currently struggling to get a straight answer from the Revenue Commissioners on just how the proceeds will be taxed.
Specifically, there is no clarity over whether gains from ETFs outside the European Union – of which there are hundreds – will be eligible for the 41 per cent exit tax usually levelled on funds, or whether the lower 33 per cent capital gains tax will apply, as is the case with normal gains from share disposals.
Marc Westlake, who relocated from Britain to Ireland several years ago, was gobsmacked when he saw how arcane the tax authorities here are when it comes to dealing with investments.
“I was staggered at how inconsistent and complicated Ireland is from an investment point of view, once you step outside pensions. In the Irish situation, something as simple as an ETF becomes probably the most complicated thing I’ve ever dealt with in 23 years,” he said.
...
Sources in the investment community said that efforts by some of the larger fund managers based in Ireland to convince the Revenue Commissioners to provide clarity on the issue had proved fruitless so far.
...
“We looked for clarity on this from the Revenue. The most concrete thing we got back from them was: ‘You could look at it that way if you wanted to’. You couldn’t get less committal if you tried.”
A Revenue spokesperson said ETFs were a “complex and specialist area”.
“The Revenue has no wish to be opaque in any respect in setting out the specifics of the law in this matter and we regret that any potential investor in ETFs may have had an unsatisfactory experience in seeking to clarify the relevant tax treatment,” she said.”
That regime requires a forensic analysis of the prospects of a particular investment fund and arguments need to be put forward why a particular fund is not “materially the same as an Irish fund”
The key point I believe is this “there was very little assistance that Revenue could provide to simplify such a complex area of legislation,”
Revenue are admitting that they themselves cannot provide guidance because this is so complicated and
“absent a complete overhaul of the offshore funds regime, there was no way of simplifying the tax treatment for investors or advisors”
Arguably that’s the real answer here. Fix the legislation and make it so that it is easier to administer and file.
Unless that happens it’s my belief that a lay person is unable to confidently file their taxes because they will not have conducted the necessary analysis of the prospectus.
You simply cannot rely on an anonymous post on askaboutmoney as the basis of your argument for why you have elected a certain tax treatment for a particular investment.
If a sufficiently large number of tax payers were to submit their tax returns with an expression of doubt it might force a positive change.
The purpose of an Expression of Doubt is to indicate to Revenue a genuine doubt about the application of law or, the treatment for tax purposes of any matter contained in the return. Arguably by revenue’s own admission that is the case here.
You should not do this lightly however as you are literally asking Revenue to take a closer look at your tax return. But in doing so they will have to address this. They themselves have admitted that this is very complex and clearly don’t want thousands of tax returns to deal with.
Everlake
Financial Advisors Dublin offering wealth management advice, cross border planning, inheritance strategies, and investment advisory.
www.everlake.ie
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Here in Germany the financial institutions have to do all the heavy tax lifting stuff for the retail investor. I only have to submit that part of the tax return governing withholding tax if I am expecting to claim overpaid withholding tax back, otherwise it's like DIRT in Ireland (from the customer's perspective). The tax is deducted at source like DIRT and forwarded to the tax man. I don't understand why the state can't force Irish financial institutions to do the same for Irish customers. You get a certain tax free allowance here in Germany as well so a single person can earn up to €1000 year in interest or dividends or whatever (it's all lumped together under that tax free allowance) and you divide the allowance up yourself between the banks you have dealings with, assigning sensible portions of it to each, depending on how much you have on deposit/invested with them. If you remain below the apportioned threshold with a given bank/broker etc. they will not deduct any tax at source at all. You can reapportion the tax free allowance as you need it if you haven't used it already by say selling some ETFs. The portion "used up" then gets locked until the end of the year and your tax free allowance at that institution can't be set below what has been availed of. In theory you could assign the full 1k allowance to all your banks except you will be caught as the banks all report what you declare back to a central system that simply adds them up and notifies your tax office if you are being naughty.
To a layman like me buying and selling ETFs is as easy as depositing and withdrawing money at a bank really. The same tax free allowance system is used for deposit interest so it is identical from an end user's tax point of view and the work is all pushed back onto the banks (not the tax man and not the customer). The banks remit any withholding tax due in excess of the tax free allowance they have been apportioned. If you make a mistake in apportioning the tax free allowance it's not critical as a tax return will clarify matters. The tax free allowance thing is for convenience and most retail investors don't make a thousand Euro in interest or dividends a year. If you are married and jointly assessed you have a 2k allowance between you. If you change the tax free allowance for a joint account, the bank will generally write to the other spouse and inform them of the change lol.
Any dealings I've ever had with Revenue, I've always been impressed with how quick, clear and transparent they have been.
But it's the opposite of that with Exit Tax!
My strong feeling is that Revenue hate this BS Tax as much as we do.
Is there a single example of Revenue taking someone to court over Exit Tax?
I would guess not, especially if they have issued multiple conflicting guidance's on the topic. Judges are not going to look kindly on non compliance orders when you can't give definitive guidance.
But it's the opposite of that with Exit Tax!
My strong feeling is that Revenue hate this BS Tax as much as we do.
Is there a single example of Revenue taking someone to court over Exit Tax?
I would guess not, especially if they have issued multiple conflicting guidance's on the topic. Judges are not going to look kindly on non compliance orders when you can't give definitive guidance.
I remember people having this exact question back then on these forums, what do you do with US dom ETFs purchased prior to 1 January 2022? There was no definite answer then but the consensus advice was that people needed to sell their ETFs before January 2022 in order that they be taxed under CGT for sure. Why didn't they clarify that back then that the clock only started running from 1 January 2022 and that they actually didn't need to rush out and sell those ETFs, they still had 8 more years before any deemed disposal tax was payable