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Tax Update: OECD Consultation on the Treaty Entitlement of Non-CIV Funds

29 March 2016

On 24 March the OECD released a follow-up consultation as part of the BEPS Action 6 on “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances”. The consultation considers the tax treaty entitlement of investment funds that do not qualify for tax treaty benefits as “collective investment vehicles (“CIVs”) in their own right. Such investment funds, which would include AIFs that do not meet the definition of a CIV, have been termed “non-CIV funds”. The consultation document requests input on a broad range of areas and suggestions, including:

  • Suggestion that treaty benefits be granted to regulated and/or widely held non-CIV funds
  • The treatment of non-CIV funds set up as transparent entities
  • Suggestion that certain non-CIV funds be granted treaty benefits where a large proportion of the investors in the funds would be entitled to the same or better benefits if they had received the income directly (a “derivative benefits” rule)
  • Suggestion that the limitation on benefits (“LOB”) rule should not deny benefits to a non-CIV resident of a State with which the non-CIV has a sufficiently “substantial connection”
  • Suggestion of a “Global Streamed Fund” (“GSF”) regime whereby investment income would be exempt from tax when derived by a qualifying fund or GSF but the fund would be obliged to distribute its income on a regular basis and tax would be collected upon these distributions
  • Concerns related to the principle purpose test (“PPT”) rule, to “anti-conduit rules” and to the “special tax regimes” proposal

The consultation document also invites respondents to provide other suggested approaches in relation to the treatment of non-CIV funds under the OECD framework. Irish Funds will be making the case for appropriate tax treaty access for cross-border AIFs, particularly in light of initiatives such as the EU’s Capital Markets Union, which seeks to promote cross-border investment through the use of vehicles that would typically be regarded as non-CIV funds.

The OECD consultation document is available here.

The closing date for responses is 22 April 2016. The Irish Funds response will be led by the International Tax Working Group.

Previous Irish Funds responses to the OECD BEPS Action 6 related consultations are available on theIrish Funds website.

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