Index tracker products with CGT

[Gordon Gekko]

No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.

 

[Sarenco]

Its a wonder an irish financial institution cant construct a few ETFs themselves produce the PRIIP themselves and domicile them in the US for irish investors.

It's no wonder at all.

Firstly, getting an US-domiciled ETF approved by the SEC is a very time-consuming and expensive process.

Secondly, there is a mismatch between the requisite disclosures in US offering documents and the requisite disclosures to EU investors.

The latter is the real reason why the big fund promoters (BlackRock, State Street, etc.) have separate US and EU-domiciled products.

 

[Daithi7]

No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.

So why not just tax the ones that don't pay dividends so!?

Not to treat them as a CGT item is an abomination imho.

(The dept of finance & revenue should hang their heads in shame for the inconsistent, contrived tax on EU based ETFs imho)

 

[Steven Barrett]

No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.

There are distribution versions of a lot of funds, where the dividends are taxed as income and the gain at 41%. It's an easy fix for the dept of finance but they choose not to. Higher taxation and in these days of socialist parties, politically loaded to do so as only rich people save...


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Gordon Gekko]

Playing devil’s advocate, what about the plus sides? 8 years of gross-roll-up and 41% on income is better than 52%.

 

[Sarenco]

Playing devil’s advocate, what about the plus sides? 8 years of gross-roll-up and 41% on income is better than 52%.

It entirely depends on the relative contribution of reinvested dividends and capital gains to the total return over the investment period.

Over the last 20 years, dividends accounted for roughly 70% of the total return on global equities (MSCI World) so an investor would actually have been far better off falling under the exit tax regime as opposed to the normal income tax/CGT regime (assuming a high marginal income tax rate).

 

[Gordon Gekko]

It entirely depends on the relative contribution of reinvested dividends and capital gains to the total return over the investment period.

Over the last 20 years, dividends accounted for roughly 70% of the total return on global equities (MSCI World) so an investor would actually have been far better off falling under the exit tax regime as opposed to the normal income tax/CGT regime (assuming a high marginal income tax rate).

And it depends what someone is invested in; something more income focussed like a bond fund could be more attractive in 41% world.

 

[EmmDee]

Paradoxically ireland is the domicile country for many of these european etfs . Its a wonder an irish financial institution cant construct a few ETFs themselves produce the PRIIP themselves and domicile them in the US for irish investors. Afterall I thought the IFSC in Dublin was managing huge sums of money for everyone else yet they cant construct a few investment products for irish investors !

Is it a wonder? Let's do some maths. How much demand do you think a US domiciled ETF would have in Ireland (let's forget about legal issues in the US for the moment). €100mm might be a stretch.

Given most US tracker funds are charging management fees of 0.25bp that would be an annual management fee of €2,500. The annual review of the documents is going to cost €10k alone. Management and overheads maybe €500k even as part of a larger organisation - multiples of that if a standalone.

Funds and especially ETF's require scale

 

[Gordon Gekko]

Is it a wonder? Let's do some maths. How much demand do you think a US domiciled ETF would have in Ireland (let's forget about legal issues in the US for the moment). €100mm might be a stretch.

Given most US tracker funds are charging management fees of 0.25bp that would be an annual management fee of €2,500. The annual review of the documents is going to cost €10k alone. Management and overheads maybe €500k even as part of a larger organisation - multiples of that if a standalone.

Funds and especially ETF's require scale

You’re correct that the demand is probably insignificant in the grand scheme of things, but it’d be a lot more than €100m in some cases. Closer to the billion territory I would reckon. Wealth managers invest in them for their client portfolios and my understanding is that Davy alone own manage around €12bn of client money. A good slug of that would be in one of the big S&P trackers, etc.

 

[Sarenco]

Qualified fund managers can still access US-domiciled ETFs - the PRIIPS KID is only required for retail investors.

 

[EmmDee]

You’re correct that the demand is probably insignificant in the grand scheme of things, but it’d be a lot more than €100m in some cases. Closer to the billion territory I would reckon. Wealth managers invest in them for their client portfolios and my understanding is that Davy alone own manage around €12bn of client money. A good slug of that would be in one of the big S&P trackers, etc.

A significant amount of products sold to retail in Ireland are repackaged offerings of larger asset managers - Blackrock, Vanguard etc. There are very local funds sold to the Irish retail market which have significant scale