From product through back-office and up the value chain
It is fair to say that the evolution of Ireland as a leading asset servicing jurisdiction can be traced to the favourable tax regime introduced as part of the development of the International Financial Services Centre (‘IFSC’) in Dublin in the late 1980s. Backed by an innovative and flexible regulatory regime and low costs relative to other countries at the time, this led to the development of a cluster of firms offering back-office activities and a well-deserved reputation for excellence. This situation is reflected today in Ireland’s impressive share of worldwide assets under administration.
Ireland’s well-developed back-office offering had the additional benefit of positioning Ireland as a leading funds domicile and, as the UCITS product increased in popularity, Ireland seized its opportunity and today it is one of the main locations for distribution of UCITS funds into Europe, Asia and the Americas. The development of the Irish fund offerings on the non-UCITS side (being the ‘QIF’ and now under AIFMD, the ‘QIAIF’) has also proven extremely successful with Ireland consistently ranked as one of the world’s leading onshore fund domiciles. Together with regulatory developments, key to the evolution of the non-UCITS product was the introduction of the gross roll-up tax regime (which exempted the fund itself from tax on income/gains and imposed an exit tax on distributions to certain Irish residents only). Ireland’s success as a leading funds hub for international investors owes much to its progressive stance in relation to taxation of investment products.
In more recent times we have seen a significant increase in the level of middle-office and front-office activities conducted in Ireland with several asset managers choosing to locate their UCITS Manager or AIFM in Ireland to support their fund products. While there are a number of reasons for this, the Irish tax regime is clearly a pull factor in asset managers’ decisions to locate here. The areas highlighted below are indicative of what Ireland has to offer to asset managers in relation to their activities;
- Ireland’s attractive low tax rate of 12.5% which applies to trading profits has been in place for over a decade and is a cornerstone of Irish economic and tax policy (in fact, it is rare for an Irish Budget speech not to reiterate the government’s commitment to maintaining this rate).
- A transparent tax system exists with adherence to OECD norms including transfer pricing.
- Profits can be repatriated on a tax efficient basis through exemptions from dividend withholding tax (‘DWT’).
- Tax efficient funding can be achieved with no debt to equity requirements and exemptions from interest withholding taxes
- Indirect tax exemptions on services to investment funds ensures lower costs.
- Local tax incentives are available including research and development credits, tax allowances on certain capital spend and special assignee relief programme to reduce income tax costs for employees relocated here.
- The Irish Investment Manager Exemption allows an Irish management company to carry out its normal business activities, on behalf of non-Irish domiciled funds, in Ireland without those activities inadvertently giving rise to a taxable presence for the non-Irish fund in Ireland.
Ireland offers a range of options for asset managers in terms of how they structure their activities. The key point to note is that Ireland continues to offer various advantages to asset managers seeking to increase their presence on the ground in Ireland. In this regard, the potentially significant tax and cost advantages to asset managers is an important part of Ireland’s offering and should be explored in each individual case. Particularly in the context of ongoing discussion and examination of the OECDs Base Erosion and Profit Shifting (‘BEPS’) initiative, Ireland offers key benefits with existing support and expertise infrastructure (including a skilled, educated workforce) already in place to support asset managers moving activities here. We have already seen evidence of this with the relocation of certain activities here including risk functions and trading desks.
In conclusion, the success of Ireland’s fund industry has, and continues to be, well supported by the innovation and certainty in its tax laws. Ireland is a tax efficient asset management centre which continues to evolve in line with market requirements. Tax innovation and certainty continue to play a key part in the decision of international organisations to locate their fund products, and front, middle and back-office operations in Ireland. A consistent, certain and competitive strategy enables the Irish tax environment to deliver the best tax efficiencies for asset managers, their fund products and their investors.