Irish Revenue Guidance on Section 110

The Irish Revenue Commissioners (“Revenue”) issued a new Tax and Duty Manual (the “Tax Manual”) on 24 May 2018, setting out the position to deal with some of the uncertainties around entitlement to treatment under section 110 (“s.110”) Taxes Consolidation Act 1997 (“TCA”). This incorporates guidance previously issued in 2012 along with new guidance such as that on Finance Act 2016 amendments.

The Tax Manual provides a strong indication of the increasing attention being paid by Revenue to s.110 and the following are the key points and important changes discussed:

• Qualifying conditions. 
• Arm’s length transactions. 
• Anti-avoidance provisions. 
• Orphan structures. 
• Loan origination.

The guidance is effective from 1 June 2018.

Read: Tax Manual.

CP86 Deadline Fast Approaching

Existing Fund Management Companies (UCITS ManCos, AIFMs, self-managed UCITS and internally managed AIFs) should be fully compliant with all aspects of the Fund Management Company Guidance issued in December 2016. This includes various new key obligations to be mindful of, such as revised managerial functions, organisational effectiveness and retrievability of records.

Read: Fund Management Companies Guidance.

AML Amendment Bill 2018

The AML Bill 2018 was published on 30 April 2018. 

The primary purpose of the AML Bill 2018 is to transpose, in part, the Fourth EU Money Laundering Directive (2015/849) into national law, and to give effect to the recommendations of the Financial Action Task Force. An explanatory memorandum was also published with the AML Bill 2018 and provides a summary of the proposed amendments.

The core provisions of the AML Bill 2018 relate to customer due diligence (verifying a customer's identity and assessing risk). They oblige designated persons to carry out a business-wide risk assessment, as well as an individual assessment in relation to each business relationship.

The AML Bill 2018 increases the obligations on a range of entities, such as credit and financial institutions, lawyers, accountants, and high-value goods dealers, in relation to money laundering and terrorist financing. In particular, it imposes requirements on those entities relating to assessing the risks of money laundering and terrorist financing involved in carrying out their businesses; putting policies in place to mitigate that risk; and carrying out business risk assessment and customer due diligence on an ongoing basis.

The AML Bill 2018 also sets out the increased functions and powers of the Financial Intelligence Unit of the Garda Síochána (the Irish police force).

Other key provisions include:

• Extending the designation of a “politically exposed person” to those resident in Ireland. Under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, designated persons must carry out enhanced measures where a customer is a “politically exposed person”, meaning persons holding certain political, judicial or other offices abroad. These measures will now also applied on a national basis.
• Designated persons will only be able to carry out simplified due diligence where a designated person has identified an area of lower risk in its business risk assessment, the business relationship or transaction falls into that area, and the relationship or transaction concerned can reasonably be considered, having regard to certain matters, to be low risk. The evidence on which this is based must be recorded, and the business relationship and concerned must be monitored. The AML Bill 2018 also include a non-exhaustive list of factors suggesting a potentially lower risk.
• Designated persons will to apply enhanced customer due diligence measures when dealing with a customer established or residing in a high-risk third country and/or a business relationship or transaction which presents a higher degree of risk. The AML Bill 2018 also include a non-exhaustive list of factors suggesting a potentially higher risk.
• Expanding the remit of the Financial Intelligence Unit - the body which receives information from designated persons about suspicious transactions etc. - and providing for enhanced international cooperation. The Irish FIU is located within the Garda Síochána.
• An expanded range of matters that must be included in the person’s policies and procedures, which must be approved by senior management and kept under review.
• An expanded definition of “Beneficial Owner”, to include an individual that ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, or through control via other means. A shareholding in excess of 25% or a share of an ownership of more than 25% held by an individual is an indication of direct ownership.
• Lowering the threshold for determining whether a high-value goods dealer falls under the AML Bill 2018 from €15,000 to €10,000.

Read: General Scheme of the AML Bill 2018.

Central Bank Consultation on Amendments to UCITS Regulations

The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 (the “Central Bank UCITS Regulations”) were published in October 2015 and came into effect 1 November 2015. The Central Bank undertook to keep the Central Bank UCITS Regulations under review and, if necessary, to update them periodically.

In the process of the annual review of the Central Bank UCITS Regulations a number of amendments have been identified by the Central Bank and are set out in CP119.

The Central Bank is also proposing to incorporate previous amendments to the Central Bank UCITS Regulations into a consolidated version of the Central Bank UCITS Regulations.

The purpose of CP119 is to set out details of the amendments and to elicit feedback from stakeholders on the following proposals:

• Section I contains details of the amendments to take account of matters arising from the 2017 review of the Central Bank UCITS Regulations.
• Section II contains amendments required to implement the European Securities and Markets Authority’s (“ESMA”) Opinion to National Competent Authorities on share classes of UCITS.
• Section III introduces new obligations (formerly Central Bank guidance) relating to UCITS which charge performance related fees.
• Section IV sets out amendments as a result of Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on Money Market Funds which came into force on 20 July 2017.

The Central Bank has invited all stakeholders to provide comments on the proposed changes no later than 29 June 2018.

Irish Revenue Guidance on Returns Earned of Regulated Investment Managers

The Irish Revenue Commissioners (“Revenue”) issued a new Tax and Duty Manual (the “Tax Manual”) on 16 April 2018, setting out the position regarding the taxation of returns earned by regulated investment managers.

For the purposes of the Tax Manual, an “investment manager” means an investment manager authorised and regulated as an Alternative Investment Fund Manager or MiFID regulated investment firm by the Central Bank of Ireland.

Revenue noted that it is aware that it is not unusual for an investment manager of a fund to invest in the funds in which it manages. Where the investment manager’s management activities are taxed, this raises the question as to whether or not the return earned on these investments forms part of the investment managers trading profits.

The Tax Manual outlined a number of specific scenarios in which Revenue views investment managers as taxable on the return earned by them on investments in fund which they manage, namely:

• Commercial Requirement: potential investors may require the investment manager to hold an interest in the investment in question as a pre-condition to making their investment, to ensure there is a mutuality of interest between the investor and the investment manager in respect of the investment. In addition a commercial requirement can also arise in certain cases where a particular investor may be prohibited, for regulatory purposes, from holding an investment in a fund which exceeds a certain proportion of the overall investment held in the fund, requiring the investment manager to invest a certain amount in the fund.
• Providing Seed Capital: it is common practice that an investment manager may be required to provide seed capital on the initial establishment of a fund.
• Ensuring Employee Remuneration Policy Compliance: at times investment managers utilise shares or units in the funds in which they manage as part of their employment remuneration policy. This can ensure that investment managers are in line with ESMA guidelines which notes a strong recommendation for the remuneration packages of an investment manager’s staff to be consistent with the risk profiles of the strategies of the fund which it manages.
• Capital Committed but not yet Deployed: the investment manager may reserve come capital to ensure that is available for investment in the future.
• Revenue stated that the above scenarios should not be regarded as having any particular impact on existing established tax principles for determining whether returns from other investment activity carried on by the investment manager would be subject to tax on trading account. There will be situations where an investment will be made by an investment manager in a fund that it manages which will not fall within the specific scenarios that are subject to the confirmation of treatment outlined in the Tax Manual.

Non-resident managers holding shares in Irish funds are entirely exempt from Irish tax on income/gains from Irish funds.

Read: Tax Manual