Ireland: The Advantages Of ICAVs

In March of 2015, the Irish Collective Asset-management Vehicle ("ICAV") Act was enacted, and it has enabled the establishment of a new structure for regulated investment funds domiciled in Ireland.

The ICAV is a flexible corporate structure that can be used to establish both UCITs and Alternative Investment Funds ("AIFs"), and there are indications to suggest the ICAV will become the default choice of structure for asset managers seeking to establish regulated funds in Ireland. The ICAV will exist alongside existing Irish structures, further diversifying the range of Irish collective investment vehicles available to investors, and also maintains the competitiveness of the Irish funds industry. In particular, the ICAV addressed an issue that has made Irish-regulated investment funds more attractive to the U.S. market and especially U.S. taxable investors, which, as readers may be aware, was the initial and key driver of the new product.

Key Driver – The U.S. "Taxable Investors" Market

In a 2011 strategy paper, the Irish Government acknowledged that despite the ongoing success of the Irish funds industry, there were recent challenges that needed to be addressed. Among them was product competitiveness, particularly in light of AIFMD and UCITS IV implementation, which both the Irish Government and the Irish Funds Industry acknowledged risked excluding business from EU markets but also represented a huge opportunity for global players to use a European base for their international business.

The combination of the above factors led to the consideration of a new fund offering, and significant attention was paid to developing a structure which, for fund promoters wishing to establish a European presence or bring offshore funds onshore to Europe, would accommodate U.S. investors without creating potential U.S. tax disadvantages.

Significance of U.S. Taxable Investors in Establishing the ICAV Blueprint

Prior to the introduction of the ICAV, Irish domiciled funds could be structured in many legal forms depending on whether they are structured as UCITS funds or non-UCITS funds. However, it was noticeable that Ireland, as a leading international fund domicile, did not offer a corporate fund structure similar to the SICAV available in other EU jurisdictions. An important consequence was that Irish corporate funds were not permitted to "check-thebox", i.e. choose to be treated as a partnership or disregarded entity, thus treating existing corporate funds as a corporate entity for U.S. federal tax purposes by default.

The significance of a corporate fund not being able to "check-the-box" is that it invariably makes such investment funds less attractive to U.S. taxable investors since that most offshore funds are considered "passive foreign investment companies" (PFIC) for U.S. federal income tax purposes, and while PFIC classification need not necessarily give rise to adverse tax consequences, it typically reduces the attractiveness of the offshore fund for many U.S. taxable investors. Accordingly, fund promoters will typically only distribute an offshore fund to U.S. taxable investors if such a fund can "check-thebox" and choose to be treated as a partnership or disregarded entity for tax purposes.

Relatedly, although Ireland introduced very favorable "re-domiciliation" legislation back in 2009 for investment fund companies established and operating in certain prescribed jurisdictions, there was little potential of Ireland being the jurisdiction of choice for offshore corporate funds (such as those domiciled in the Cayman Islands) that might seek to re-domicile onshore to Europe if they had "checked the box" since it would not be able to maintain existing U.S. federal tax status. Similarly, before the introduction of the ICAV, Ireland was not a relevant jurisdiction for fund promoters that specifically wanted to establish a corporate European investment fund attractive to U.S. taxable investors.

Therefore, at the very heart of the new product offering was the need for a structure attractive to such investors, and so the ICAV was born.

The ICAV

For these reasons, the ICAV was introduced as a corporate structure that has the ability to check-the-box, i.e. be treated as a partnership or a disregarded entity for U.S. federal tax purposes, or opt out of its default U.S. federal tax classification as a corporate entity.

When combined with Ireland's reputation as being one of the leading jurisdictions for the establishment and/or re-domiciliation of regulated investment funds, now makes Ireland the European jurisdiction of choice if the fund is going to be sold, in any great significance, to U.S. taxable investors.

More recently, discussions regarding "check-the-box" has centered on whether the classification can be achieved on a sub-fund basis where the ICAV is established as an umbrella fund with segregated liability between sub-funds. This has certainly thrown up some interesting discussions and debates with U.S. tax counterparts.

Furthermore, for fund promoters wishing to establish a master/feeder fund structure to accommodate both U.S. taxable and U.S. tax-exempt investors, the introduction of the ICAV provides the option for the master fund to be formed as an ICAV as opposed to a unit trust or investment limited partnership.The feeder fund (for U.S. tax-exempt investors and non- U.S. investors) will also be able to be formed as an ICAV, corporate fund PLC, unit trust or investment limited partnership, as all 4 types of legal entities should be able to be treated as a corporate entity for U.S. tax purposes.

U.S. Treaty Benefits

The ICAV, like the other three types of investment funds, can also qualify for the benefits of the U.S./Ireland double tax treaty, subject to satisfying its "Limitation on Benefits" article. For the avoidance of doubt, an election to check-the-box to be treated as a partnership or disregarded entity should not generally impact an ICAV's position with respect to the treaty between Ireland and the United States. The possibility of obtaining treaty benefits gives the ICAV (and Irish investment funds in general) a significant advantage over other domiciles such as Luxembourg.

Key Legal Benefits of the ICAV

While tax was the original driver of the ICAV, the industry also took the opportunity when drafting the ICAV legislation to introduce a structure that offers a number of distinct and welcoming advantages over other Irish fund structures.

  • The ICAV legislation is distinct from existing Irish company legislation governing other Irish companies, such as the PLCs, which may not be particularly relevant or appropriate for collective investment scheme. The ICAV structure protects investors and fund promoters from any inconveniences arising from changes in this Irish legislation.
  • The Central Bank of Ireland acts as both the registration and supervisory authority for the ICAV. The ICAV application process is administratively efficient for UCITs of AIFs.
  • In circumstances where amendments to the instrument of incorporation are required, prior approval of the investors will not be required provided that the depositary certifies in writing that the relevant amendments do not prejudice the interests of the shareholders of the ICAV, and the amendment does not require shareholder approval under central bank regulations.
  • The directors of an ICAV can dispense with the general requirement to hold an annual general meeting provided they give the ICAV's shareholders 60 days notice. 10% of shareholders or the auditor, however, maintain the right to request such a meeting.
  • Irish company law requires that the accounts of all sub-funds of an umbrella type PLC be included in the consolidated annual financial statements of that company. Separate financial statements for individual sub-funds of an umbrella ICAV may be prepared, which ensures investors in a single sub-fund will only receive the information that is relevant to them. This reduces the cost and time spent by fund directors and their advisers in compiling and circulating financial statements.
  • The ICAV structure will not be subject to the principle of risk spreading rules, unlike other corporate vehicles offered in Ireland, and an AIF ICAV may be structured as a single asset fund under the AIFMD framework.

Conversion of a PLC to an ICAV

A fund incorporated as a PLC that wishes to avail of the benefits of the ICAV can do so under the conversion provisions of the ICAV Act through a straightforward process similar to the re-domiciliation mentioned earlier. It requires the approval of the existing company's shareholders and the provision of certain statutory declarations from directors of the PLC. It is anticipated that the cost benefits of the additional flexibility afforded by the ICAV are likely to outweigh those from converting a PLC, and many funds have already converted to the ICAV structure.

Moreover, the conversion is considered a continuation, which allows the fund to continue to utilize prior performance data and any contracts that the fund may have entered into prior to the conversion process. It should also be noted that it will not be possible to employ the conversion procedure in respect of an existing UCITS or AIF established as a unit trust, investment limited partnership or common contractual fund.

Tax - It goes without saying that consideration should always be given to the tax impact such a conversion may have on existing investors, in particular U.S. tax implications.

Impact of the ICAV

More than 129 ICAV's have been established since the legislation was enacted, further highlighting the Irish Government's continued commitment to develop international financial services. Due to rising investor demand for more regulated vehicles and the migration of large funds from other less regulated domiciles, we believe the development of the ICAV is set to enhance Ireland's reputation as a world-leading domicile for investment funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions