Answer ... Qualifying investor AIFs (QIAIFs) and retail investor AIFs (RIAIFs) are not subject to any tax on the income (profits) or gains arising on their underlying investments. While dividends, interest and capital gains that an AIF receives with respect to its investments may be subject to taxes, including withholding taxes, in the countries in which the issuers of investments are located, these foreign withholding taxes may nevertheless be reduced or eliminated under Ireland’s network of tax treaties, to the extent applicable.

Answer ... Compensation paid to Irish managers and advisers (eg, management/advisory fees, as well as performance fees) of RIAIFs/QIAIFs is generally subject to corporation tax at the trading rate (ie, 12.5%).

With regard to carried interest, aside from a regime introduced in 2009 for certain venture fund managers in respect of qualifying venture capital funds (which must be structured as partnerships and which are quite limited in their activities), Ireland does not have specific legislation dealing with carried interest. Nevertheless, generally speaking, it should be possible to structure funds such that carried interest could be treated for Irish tax purposes as a capital gains tax receipt subject to tax at the standard rate (currently 33%) in the hands of an individual manager. The aforementioned venture fund managers regime (where applicable) reduces the capital gains tax rates even further to 15% (as opposed to 33%) for an individual and 12.5% (as opposed to an effective 33% rate) for a company.

Answer ... RIAIFs/QIAIFs are not subject to any taxes on their income (profits) or gains arising on their underlying investments. The tax treatment of investors depends on whether they are Irish resident or ordinarily resident in Ireland.

RIAIFs/QIAIFs other than common contractual funds (CCFs) or investment limited partnerships (ILPs):

Non-Irish residents: There are no Irish withholding taxes in respect of a distribution of payments by such AIFs to investors or in relation to any encashment, redemption, cancellation or transfer of units in respect of investors that are neither Irish resident nor ordinarily resident in Ireland, provided that the AIF has satisfied and availed of certain equivalent measures or the investors have provided the AIF with the appropriate relevant declaration of non-Irish residence.

Irish residents:

• Exempt investors (including pension funds): Again, no Irish withholding taxes apply in respect of a distribution of payments by the AIF to such investors (eg, approved pension schemes, charities, other investment funds) or any encashment, redemption, cancellation or transfer of units in respect of investors that have provided the AIF with the appropriate relevant declaration.
• Non-exempt investors: If an investor is an Irish resident and not an exempt Irish investor, tax at the rate of 41% (or 25% where the unitholder is a company and an appropriate declaration is in place) must be deducted by the AIF on distributions (where payments are made annually or at more frequent intervals). Similarly, tax at the rate of 41% (or 25% where the unitholder is a company and an appropriate declaration is in place) must be deducted by the AIF on any other distribution or gain arising to the investor on an encashment, redemption or similar of units by an investor that is Irish resident or an ordinary resident in Ireland. While this tax will be a tax liability of the AIF, it is effectively incurred by investors out of their investment proceeds.

RIAIFs/QIAIFs established as CCFs or ILPs: For Irish tax purposes, CCFs and ILPs (authorised on or after 13 February 2013) are treated as ‘tax transparent’. This means that the income and gains arising or accruing to the AIF are treated as arising or accruing to its unitholders/partners either:

• in the case of a CCF, in proportion to the value of the units beneficially owned by them; or
• in the case of an ILP, in accordance with the apportionment terms of the partnership agreement.

The income and gains are treated as if they did not pass through the hands of the CCF or ILP. Consequently, for tax purposes, the profits that arise to this type of AIF are treated as profits that arise to the unitholders/partners themselves. Currently, natural persons cannot invest in a CCF without negatively affecting their Irish tax transparent status. This may change in the future.

Irish real estate funds (IREFs): Ireland has recently introduced a new withholding tax regime in respect of certain Irish property-related distributions and redemptions made by IREFs to certain unitholders. An IREF is a non-undertaking for collective investment in transferable securities authorised fund where:

• 25% or more of the market value of its assets is derived from certain types of Irish real estate-related assets (‘IREF assets’); or
• it would be reasonable to consider that the fund’s main purpose (or one of its main purposes) is to acquire IREF assets or carry on an IREF business (ie, activities involving IREF assets the profit or gains of which would, but for the general tax exemptions applied to funds, be within the scope of Irish taxation).

Where a fund is an umbrella fund, the new rules will be applied at the sub-fund level. In summary, subject to certain exceptions, a 20% withholding tax will be imposed on distributions and redemptions made out of IREF profits, which are essentially the accounting profits of the IREF with certain exclusions (eg, distributions/dividends made by unquoted companies which derive the greater part of their value from Irish relevant assets).

The Finance Act 2019 introduced certain anti-tax avoidance measures in respect of excessive debt financing of IREFs and expenses not wholly and exclusively incurred for the purposes of the IREF business (both of which could be used to reduce the profits of the IREF and thus the amount of withholding tax suffered on a distribution). The anti-avoidance provisions do not apply to genuine third-party debt.

Answer ... Foreign Account Tax Compliance Act (FATCA): The Irish and US governments signed a Model 1 intergovernmental agreement (IGA) on 21 December 2012. Provisions were included in the Irish Finance Act 2013 for the implementation of the IGA and to permit regulations to be made by the Irish Revenue Commissioners with regard to registration and reporting requirements arising from the IGA. Subsequently, the Irish Revenue Commissioners (in conjunction with the Department of Finance) issued Regulations SI 292 of 2014, which were effective from 1 July 2014. Supporting guidance notes have also been issued by the Irish Revenue Commissioners and are updated on an ad hoc basis. RIAIFs/QIAIFs that are Irish reporting financial institutions for FATCA purposes have certain registration, due diligence and reporting requirements. Compliant RIAIFs/QIAIFs will not be subject to, and need not apply, FATCA withholding taxes.

Common Reporting Standard (CRS): As Ireland was one of the early adopter countries, the legislation to implement the CRS in Ireland was introduced in the Finance Act 2014 by inserting Section 891F into the Taxes Consolidation Act 1997, and the Regulations SI 583 of 2015) came into effect on 31 December 2015. The legislation to implement the Revised EU Directive on Administrative Cooperation in the Field of Taxation (which essentially imports the CRS into EU legislation) in Ireland was introduced in the Finance Act 2015 by inserting Section 891G into the Taxes Consolidation Act 1997. Section 891F will not apply where Section 891G applies. RIAIFs/QIAIFs that are Irish reporting financial institutions for CRS purposes have certain registration, due diligence and reporting requirements.

Mandatory disclosure rules: Council Directive (EU) 2018/822 (amending Directive 2011/16/EU), commonly referred to as ‘DAC6’, became effective on 25 June 2018. Relevant Irish tax legislation has since been introduced to implement this directive in Ireland. DAC6 creates an obligation for persons referred to as ‘intermediaries’ to make a return to the relevant tax authorities of information regarding certain cross-border arrangements with particular characteristics, referred to as ‘hallmarks’ (most of which focus on aggressive tax planning arrangements). In certain circumstances, instead of an intermediary, the obligation to report may pass to the relevant taxpayer of a reportable cross-border arrangement. There is still a certain degree of ambiguity in respect of the implementation of DAC6 in Ireland – in particular, its exact scope as it relates to AIFs. Revenue guidance is currently in the process of being drafted which should provide clarity on a range of matters.

Answer ... The tax strategy adopted for any given AIF will depend on numerous factors, some of which will be non-Irish factors. Therefore, in order to achieve the optimum structure, expert advice should be sought on a case-by-case basis. Notwithstanding this, there are several strategies/structures available in Ireland that may assist in achieving an optimum result.