The Irish Minister for Finance has approved, in principle, the development of legislation for a new corporate structure for funds which is intended to meet US ‘check the box’ requirements and reduce administrative costs.
This step is consistent with the Irish government’s on-going commitment to the continued development of the funds industry in Ireland.
According to Mark White, a partner with law firm McCann Fitzgerald, it is expected that the new legislation will introduce a market-leading corporate structure that combines the high standards of governance, transparency and investor protection that one expects of an Irish authorised fund with the characteristics that fund promoters and distributors want when seeking to raise capital on a global basis.
The Legislative Sub-Group of the IFSC Funds Group (of which McCann FitzGerald is an active member) played a leading role in securing commitment to this development.
Investment funds in Ireland are typically structured as either unit trusts, or public limited companies and, less frequently, as investment limited partnerships. Recent statistics reflect the growing popularity of Irish vehicles for fund promoters – in 2011 Ireland attracted some EUR60 billion in new UCITS monies – twice as much as all other jurisdictions in aggregate. In addition, in excess of 63% of European hedge funds are domiciled in Ireland. Current figures reflect even more accelerated growth of assets under management in Irish fund vehicles.
Nevertheless, as an industry, significant effort is dedicated to continually improving the flexibility and attractiveness of Irish vehicles. In this context, the proposed new legislation will facilitate a new form of Irish corporate investment vehicle allowing managers and promoters to avail of a structure that is designed specifically for investment funds and which is not subject to rules or requirements designed for other forms of company (thereby helping to reduce administrative burden and costs).
One of the primary objectives of the proposed legislation is to permit the creation of an Irish authorised corporate fund that can, under U.S. tax rules, make an election (i.e. "check the box") to be treated as a flow-through or partnership for US tax purposes.
Currently, Irish authorised unit trusts and investment limited partnerships can be treated as a flow-through or partnership for US tax purposes. However, where an Irish authorised fund is constituted as a public limited company, it is a "per se" corporation for US tax purposes and therefore cannot be treated as a flow-through or partnership; the proposed new Irish authorised corporate fund is, however, designed to be treated as a flow-through or partnership for US tax purposes.
The proposed legislation is expected to become law in Ireland by the end of 2012, well ahead of Irish implementation of the EU Alternative Investment Fund Managers Directive in July 2013.