Dáil Éireann Debate, Thursday - 13 June 2024
74. Deputy Pearse Doherty asked the Minister for Finance the current regime with respect to the taxation of carried interest paid to private equity managers; and the revenue raised by tax-carried interest at rates of 20%, 33% and 40%, respectively. [25838/24]
View answerI understand the Deputy is referring to the taxation of carried interest received by certain venture capital managers, as provided for in section 541C of the Taxes Consolidation Act 1997 (‘TCA 1997’).
Section 41 of the Finance (No 2) Act 2008 inserted section 541C TCA 1997 and introduced a new tax regime for the return (known as carried interest) received by venture capital managers for managing investments in certain venture capital funds. The provision treats the carried interest to which the section applies, and which is received by a partnership or a company, as chargeable gains and charges those gains to capital gains tax (‘CGT’) at a rate of 15% if received by an individual or a partnership, or a rate of 12.5% if received by a company, rather than the standard rate of CGT, as provided for in section 28 TCA 1997 and which currently stands at 33%.
In order to qualify for this treatment, investments must be made on or after 1 January 2009 for a period of at least 3 years from the date of the initial investment in private trading companies which are engaged in carrying on a business of research and development or innovation activities. Relief will be given in respect of the amount of carried interest that represents the proportion which the relevant investments in an EEA State, including Ireland, as well as in the United Kingdom bears to the total relevant investments of the qualifying venture capital fund.
According to data published by Revenue, the estimated cost of the treatment provided for in section 541C TCA 1997 in 2022 was €1.1M, reflecting 13 claims across both companies and individuals.
The taxation of returns which arise to venture capital managers for managing investments in venture capital funds that fall outside the scope of section 541C TCA 1997 depends on whether the returns arise in the course of a trade or not. Returns arising in the course of a trade may be subject to income tax or corporation tax, with returns arising in non-trading circumstances more likely to be subject to CGT at the standard rate. The specific treatment is dependent on the facts and circumstances of each case. I am advised by Revenue that, in relation to returns that fall outside the scope of section 541C, it is not possible to provide a breakdown of amounts taxable at the various rates across different fact patterns.
