Revenue E-Brief on ETFs

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Marc

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Well here it is folks.

Revenue eBrief No. 164/21

Exchange Traded Funds
www.revenue.ie www.revenue.ie

In particular note this footnote!!

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Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
Extraordinary. And very unfair, almost retrospective taxation.

Since that guidance, markets have gone gangbusters, so people are going to be forced to crystallise large gains.
 
Am I reading this correctly?
The rules have changed for new Etf investments from Jan 2022.
The non-Ucits funds, right?
 
Does withdrawal of confirmation mean that the opposite automatically applies?

@fistophobia I read it as applying to both new and existing investments.
 
Pretty sad that they had the docs offline for so many months and basically changed nothing beyond that footnote. Was really hoping for clarification on lots of the issues around deemed disposal and their conflicting "guidance" over the years.
 
Sarenco said:
I’m pretty sure they are saying that the exit tax/deemed disposal regime will apply to all ETFs, regardless of domicile, from the start of next year.
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My issue is not so much that it applies, it is how it applies. I've seen different people get conflicting advise, and their own documents contradict a few bits too. Not to mention that the example in about 27-01a-02 average cost deemed disposals is not have the life companies apply it either.
 
How can that be fair? Someone has followed the Revenue guidance and invested in a US ETF. And now the rug is pulled from under them and they need to sell the ETF and trigger a CGT liability or enter the draconian fund tax regime.
 
Yes but what has changed ? before 1 January 2022 US domiciled etfs are treated under cgt regime and treated like shares afterwards they are treated like European etfs. But they haven't said why ? even revenue have to give a reason. They have to say why they have changed the definition and on what basis it has changed?
 
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Thanks Marc

I'd just emailed them yesterday to see if they had finished their review. I guess they had! I had really hoped they would go the other way. :mad:

Given that US ETFs are subject to income tax on dividends and CGT, there is no point in holding them and reinvesting the dividends. The gross roll up regime is now the only option.
 
Some observations on this are

1) Revenue are clearly kicking Irish investors back to a professional adviser if they are in any doubt. I can't stress enough how difficult this is for the lay-person to do in Ireland compared to more investor friendly jurisdictions like the UK or the USA.

2) For intermediaries they have clearly set out their position on the Form 8d filing obligation which we know for a fact financial advisers have been blissfully unaware of for years! They make reference more than once to the €4,000 fine per transaction - deep intake of breath by the financial adviser community that have been lashing funds into De Giro and Interactive Brokers for years and not shopping their clients (sorry, filing the transactions) with Revenue.

3) On UK investment trusts, while these were only mentioned in passing I thought it was interesting, they said:


“Some investment ISAs will turn an investment in quoted shares (unlikely to be an offshore fund) into a holding in an investment trust (likely to be an offshore fund)”


They are not definitive here as to whether a UK investment trust is or is not an offshore fund, which we would agree with (some are and some are not). Again, DIY investing is not recommended here either

However, and this is really important, in practical terms this does not actually change anything, they are still talking about an offshore investment only being considered a fund if it is "equivalent" to an Irish authorised unit trust etc. The reason Revenue agreed that ETFs issued by US or Canadian issuers under a unit trust arrangement were not considered funds in the first place was because they are not considered to be "equivalent" to Irish unit trust schemes, the most important factor here being that they do not offer investors the facility to redeem their units directly with the unit trust.

Therefore, in the opinion of our expert tax consultants this doesn't make any difference in practice. Although, of course, you still need to navigate the US Federal Estate tax on US situs assets held by non-resident foreign aliens which makes US ETFs extremely risky for many Irish investors, or the EU PRIIPs regulations which prevent retail investors from purchasing non-EU ETFs in the first place!

Hours of fun for all,


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
Marc said:
However, and this is really important, in practical terms this does not actually change anything, they are still talking about an offshore investment only being considered a fund if it is "equivalent" to an Irish authorised unit trust etc. The reason Revenue agreed that ETFs issued by US or Canadian issuers under a unit trust arrangement were not considered funds in the first place was because they are not considered to be "equivalent" to Irish unit trust schemes, the most important factor here being that they do not offer investors the facility to redeem their units directly with the unit trust.

Therefore, in the opinion of our expert tax consultants this doesn't make any difference in practice
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I don't understand this opinion.

ETFs, whether Irish domiciled or otherwise, never provide a redemption facility to investors - that's not how they work.
 
Marc said:
“Some investment ISAs will turn an investment in quoted shares (unlikely to be an offshore fund) into a holding in an investment trust (likely to be an offshore fund)”
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I think this statement needs to be read in context.

UK-domiciled investment trusts typically trade at a material discount or premium to the value of their underlying assets and would not therefore fall within the definition of an offshore fund.

I don't see anything in the revised guidance that changes the position regarding the taxation of UK-domiciled investment trusts in Ireland.
 
Marc said:
Therefore, in the opinion of our expert tax consultants this doesn't make any difference in practice. Although, of course, you still need to navigate the US Federal Estate tax on US situs assets held by non-resident foreign aliens which makes US ETFs extremely risky for many Irish investors,
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Thanks for bringing this to people's attention here. However if it doesn't make any difference what has the revenue e-brief actually clarified and what is changing on 1 January 2022 ?
 
Gordon Gekko said:
How can that be fair? Someone has followed the Revenue guidance and invested in a US ETF. And now the rug is pulled from under them and they need to sell the ETF and trigger a CGT liability or enter the draconian fund tax regime.
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I'm in the same boat and not happy about this news at all. US ETFs are distributing not accumulating - it's the same as owning shares.

joe sod said:
Yes but what has changed ? before 1 January 2022 US domiciled etfs are treated under cgt regime and treated like shares afterwards they are treated like European etfs. But they haven't said why ? even revenue have to give a reason. They have to say why they have changed the definition and on what basis it has changed?
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Does anyone know if there is a way to engage with Revenue to ask to explain their reasoning...

Prior guidance confirmed that investments in ETFs domiciled in the USA, the EEA or in an OECD member state
(other than the USA) with which Ireland has a double taxation treaty, follows precisely the treatment that
would apply to share investments generally. That confirmation does not apply to such investments with effect
from 1 January 2022
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Gordon Gekko said:
they need to sell the ETF and trigger a CGT liability or enter the draconian fund tax regime.
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Wishful thinking but is there anyway this could mean that US ETFs purchased before 1 January 2022 would continue to stay treated as they were....(grasping at straws here)
 
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