The 2013 Irish Budget (hereafter referred to as "Budget 2013") was announced on 6 December 2012 and included therein are several measures that are specifically relevant to the Irish fund industry.

(i) FATCA – Conclusion of Irish / US Intergovernmental Agreement

A welcomed announcement within the Budget 2013 speech was the confirmation that that the Irish and US Governments have concluded an intergovernmental agreement ("Irish IGA") in relation to the US Foreign Account Tax Compliance Act – commonly referred to as FATCA.

Mr Michael Noonan T.D, Minister for Finance and Chargé d'affaires at the U.S. Embassy in Ireland, John Hennessey-Niland signed in Dublin the Irish IGA on 21 December 2012. Ireland is now one of only four countries to have signed an IGA with the United States.

This agreement will be of benefit to Ireland as it is intended to reduce and simplify the administrative and compliance burdens for relevant Foreign Financial Institutions or "FFI's" (which is broadly defined under FATCA and would include Irish funds) and therefore may provide a competitive advantage as compared to other countries which may not be able to reach a similar agreement with the US. Under the Irish IGA, relevant FFI's will report directly to the Irish Revenue Commissioners and will therefore not be required to enter directly into potentially onerous FFI Agreements with the US Internal Revenue Service (which would generally be required in the absence of an IGA).

Under the Irish IGA, a relevant FFI will also typically not be required to apply the 30% withholding tax that FATCA could generally impose.

The relevant Irish legislation to implement the Irish IGA will need to follow a number of steps. The Irish IGA will first need to be transposed into Irish law by means of a Statutory Instrument. The enabling legislation will then need to be introduced into the Taxes Consolidation Act 1997. It is hoped that can be done by its inclusion in the Finance Act 2013 (which is expected to be passed in March 2013 - the Finance Bill 2013 is expected to be published in January 2013). If that is not possible, then the necessary legislation to include the Irish IGA in the Taxes Consolidation Act 1997 will need to be introduced by means of another Act.

HM Revenue & Customs has issued a set of frequently asked questions on data protection issues related to the implementation of the equivalent U.K./U.S. agreement. While these FAQs naturally reflect U.K. data protection legislation, there is a significant degree of overlap between that and Irish data protection legislation (both stemming from Directive 95/46/EC) and therefore the FAQs may be seen as a rough guide for the purposes of Irish-domiciled funds.

The HM Revenue & Customs FAQs may be viewed at the following link: http://www.hmrc.gov.uk/budget-updates/march2012/draft-dpa-fatca-faqs.pdf

(ii) Introduction of the Real Estate Investment Trust (REIT)

Budget 2013 has confirmed the introduction of an Irish Real Estate Investment Trusts ("REIT"). Real Estate Investment Trusts are established as listed companies and are used to invest in a diverse range of rental investment properties in a tax efficient manner. They are already a very well established and utilised vehicle in Europe, the US, Asia and Australia and it is hoped that the introduction of the REIT will do much to stimulate growth in the Irish property market by encouraging foreign investment and indeed complementing the Irish Funds industry.

Although there is little detail available it has been confirmed that a REIT will be exempt from corporation tax on qualifying income and gains. However, the REIT will be required to distribute the large majority of its profits annually to its' respective investors and these distributions will be taxed at the level of the investor. It is likely that these distributions will be subject to a customised tax regime; however, this will become clearer once the Finance Bill is issued in early 2013.

Investors will benefit from the use of the REIT as it avoids the potential double taxation issues that arise when investing in property through a normal property investment company and also reduces investment risk as the REIT invests in a wide variety of rental properties and thus risk is diversified. The REIT is also a very liquid scheme for prospective investors as it allows for the investors to sell their shares at any time.

The introduction of the REIT is yet another measure to attract new investment in property transactions, and follows on from the reduction last year of stamp duty from 6% to 2% for commercial property transactions which has helped to bring stability to the commercial property sector.

(iii) Investment Funds – Increase in applicable rates for "chargeable events" for certain Irish Investors

While Irish regulated investment funds are exempt from tax arising on their income and gains, Irish tax legislation allows for tax to be applied on certain "chargeable events" for certain Irish investors (not falling within the exempt Irish investor category).

Budget 2013 proposes to increase rates of tax applicable on these "chargeable events" from 30% to 33% for payments made annually or more frequently and from 33% to 36% for payments made less frequently than annually. As always, this tax is not applicable to non-Irish resident investors (in so long as the non-resident investors in question have made a relevant declaration or the investment undertaking has satisfied and availed of the "Equivalent Measures" regime).

(iv) VAT and Stamp Duty

Budget 2013 did not announce any changes to Stamp Duty or to the current rates of VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.