Key Takeaways
- • Irish-regulated alternative fund assets under management grew from €151 billion in 2009 to more than €751 billion, according to PwC Ireland's Alternative Investments Tax team.
- • Irish Special Purpose Vehicles (SPVs) held more than €850 billion of assets under management as of Q4 2019.
- • The Irish Collective Asset-Management Vehicle (ICAV) is the preferred regulated fund vehicle, while the Section 110 (S.110) company remains the most popular unregulated structure.
- • Irish funds are tax neutral under a special regime in place since the International Financial Services Centre was established in 1987, with a 12.5% trading rate and a 25% rate on non-trading income.
- • Common Contractual Fund (CCF) assets under management rose 150% over three years, from $40 billion to over $100 billion, with $62 billion in AIF CCFs.
- • Reform of the Investment Limited Partnership (ILP) and the Irish participation exemption regime is expected to increase the appeal of Irish structures for private asset managers.
Summary
PwC Ireland's Alternative Investments Tax team has published the first in a series of articles on the Irish alternative funds industry, providing an overview of the domicile's main structures and its tax position. According to the firm, Ireland's funds industry is synonymous with alternative investments. Alternative assets under management in Irish regulated funds grew from €151 billion in 2009 to in excess of €751 billion currently, while Irish SPVs held in excess of €850 billion in assets under management as of Q4 2019. PwC attributes this success to EU market access, a diverse product suite, an experienced local service provider ecosystem and the tax regime.
The strategies housed in Irish alternative funds span hedge funds, private equity, private debt, infrastructure, real estate, and a significant number of aircraft leasing and shipping funds. The ICAV, introduced in 2015, has become the vehicle of choice for regulated alternative fund promoters and has replaced the investment company or PLC structure as the preferred corporate vehicle. An ICAV is typically an umbrella structure with segregated sub-funds. The S.110 company, a special purpose structured finance vehicle that does not require Central Bank approval, is widely used for securitisations, CLOs, CDOs and aviation financing, where Ireland is a global hub.
PwC notes that the Irish limited partnership has not grown in line with market trends despite increasing allocations to private assets. The Investment Limited Partnership (Amendment) Act 2020 has brought the regulated ILP in line with international counterparts, and PwC expects it to be popular with private asset managers. PwC also highlights the Irish trading company, which may be used where portfolio activity constitutes a trade subject to the 12.5% rate, and the holding company structure, which benefits from a capital gains participation exemption but faces complexity in foreign tax credit calculations. Changes to the participation exemption regime are expected to make the structure more attractive for alternative investments.
The Common Contractual Fund, authorised and regulated by the Central Bank, is tax transparent and treats investors as direct co-owners of fund assets. Its assets under management rose 150% over three years to over $100 billion, of which $62 billion sits in AIF CCFs. According to PwC, the CCF is costlier to run and caters only to institutional clients. Irish regulated funds face no Irish tax on income, gains or net asset value, and redomiciliation is available from the British Virgin Islands, Cayman Islands, Jersey, Guernsey, Bermuda and the Isle of Man.
The strategies housed in Irish alternative funds span hedge funds, private equity, private debt, infrastructure, real estate, and a significant number of aircraft leasing and shipping funds. The ICAV, introduced in 2015, has become the vehicle of choice for regulated alternative fund promoters and has replaced the investment company or PLC structure as the preferred corporate vehicle. An ICAV is typically an umbrella structure with segregated sub-funds. The S.110 company, a special purpose structured finance vehicle that does not require Central Bank approval, is widely used for securitisations, CLOs, CDOs and aviation financing, where Ireland is a global hub.
PwC notes that the Irish limited partnership has not grown in line with market trends despite increasing allocations to private assets. The Investment Limited Partnership (Amendment) Act 2020 has brought the regulated ILP in line with international counterparts, and PwC expects it to be popular with private asset managers. PwC also highlights the Irish trading company, which may be used where portfolio activity constitutes a trade subject to the 12.5% rate, and the holding company structure, which benefits from a capital gains participation exemption but faces complexity in foreign tax credit calculations. Changes to the participation exemption regime are expected to make the structure more attractive for alternative investments.
The Common Contractual Fund, authorised and regulated by the Central Bank, is tax transparent and treats investors as direct co-owners of fund assets. Its assets under management rose 150% over three years to over $100 billion, of which $62 billion sits in AIF CCFs. According to PwC, the CCF is costlier to run and caters only to institutional clients. Irish regulated funds face no Irish tax on income, gains or net asset value, and redomiciliation is available from the British Virgin Islands, Cayman Islands, Jersey, Guernsey, Bermuda and the Isle of Man.
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