Dáil Éireann Debate, Wednesday - 26 June 2024
36. Deputy Cathal Crowe asked the Minister for Finance if he will consider changing current taxation rules which are overly burdensome on individual investors who are seeking to grow their savings and plan for the future (details supplied); and if he will make a statement on the matter. [27487/24]
Amharc ar fhreagraI note the Deputy's query in relation to the taxation of individuals savings and investments and whether any changes are being considered in this regard. As with all areas of tax policy, the taxation of savings and investments will be kept under review throughout the annual budgetary and Finance Bill process.
As regards the Deputy's comments in relation to individual savings schemes. The Deputy will be aware that the UK have individual savings account (ISA) schemes in place, which allows for savings and investments free from UK tax. The introduction of a new financial services product in Ireland on the lines of the UK ISA or the TFSA in Canada would need to be considered in the wider policy context. The introduction of a similar type scheme would need to comply with EU financial services legislative and regulatory requirements and the tax implications would be determined by the structure of such a scheme.
Last year, on 6 April 2023, I published the Terms of Reference for a review of Ireland’s funds sector - ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’. The review is wide ranging and looking at a range of issues relevant to the funds sector, taking into account the recommendations in this area of the Commission on Taxation and Welfare 2022 report, Foundations for the Future.
In that context, one area being considered by the review is the taxation regime for funds, life assurance policies and other related investment products; with the goal of simplification and harmonisation where possible. A public consultation was held from 21 June 2023 to 15 September 2023 and the review is now well advanced.
A progress update was subsequently published on 21 December 2023. The progress update highlighted the main trends, risks, challenges and opportunities facing the funds industry in Ireland out to 2030, as identified in the responses. Based on the data available, Irish savers and investors do not invest in as broad a range of products as in many other Member States. However, there are many reasons for this including taxation. The progress update also summarises proposals made in submissions in relation to the taxation of Exchange Traded Funds and for a tax-free/tax-advantaged retail savings and investment product. As per the terms of reference, the Review team will report to me this Summer and I look forward to considering its findings at that point. On that basis it would not be appropriate to presuppose any outcomes of the review at this time.
Additional information on the taxation of ETFs
An ETF is an investment fund that is traded on a regulated stock exchange. A typical ETF can be compared to a tracker fund in that it will seek to replicate a particular index.
ETFs, being collective investment funds, generally come within the regimes set out in the Taxes Consolidation Act 1997 for such funds. The domicile of the ETF will generally determine the applicable fund regime, specifically whether the ETF falls within the domestic fund regime or the offshore fund regime.
Where the domestic fund regime applies, a ‘gross roll-up’ applies such that there is no annual tax on income or gains arising to a fund but the fund has responsibility to deduct an exit tax in respect of payments made to certain unit holders in that fund. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years. Where the offshore fund regime applies, the applicable tax treatment depends on the location and nature of the fund.
Income and gains arising from investments into Irish and EU domiciled ETFs are subject to income tax at a rate of 41% on a self-assessment basis. Such income and gains are not subject to Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) liabilities. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, liability to tax on gains from the fund will be determined in their home jurisdiction.
To assist taxpayers in determining the appropriate tax treatment for investments in ETFs, Revenue has published guidance which is available at: www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-03.pdf .
