Ireland's Response To Demand From Investors To Move Onshore

Author:Mr Carl O'Sullivan, Kevin Murphy and Sarah Cunniff
Profession:Arthur Cox
 
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In December 2009 new legislation was enacted in Ireland which provided for investment funds established outside of Ireland to move to Ireland and become subject to Ireland's investment funds regulatory regime. This legislation illustrates the Irish government's support of the Irish funds industry by seeking to address the tax difficulties faced in the past by funds that chose to move their base. The provisions, contained in the Companies (Miscellaneous Provisions) Act 2009, provide a real opportunity for funds established outside of Ireland to move to a regulated jurisdiction using a straightforward filing process. On 6 September 2010 the Irish government issued a commencement order facilitating the redomiciliation of funds from certain prescribed jurisdictions into Ireland, being - the British Virgin Islands, the Cayman Islands, Jersey, Guernsey, Bermuda and the Isle of Man. This legislation now clears the way for those promoters with offshore funds in the prescribed jurisditions who wish to move to a regulated jurisdiction to do so using the straightforward process set out in the legislation. This note explains the rationale underpinning the legislation and summarises the process by which the redomiciliation occurs.

Historically, funds have moved to Ireland through a scheme of arrangement involving an in specie subscription by the offshore fund to the Irish fund and the issue of units by the Irish fund to the investors in the offshore fund. The difficulty with this process is that it may cause a taxable event for some investors depending on the capital gains tax laws in the offshore fund's home jurisdiction. In order to avoid triggering a capital gains tax issue for investors, the new legislation enables a fund to move from an offshore jurisdiction to Ireland by changing its seat or place of domicile to Ireland, but significantly the investors remain shareholders in the same legal entity.

Why are funds moving?

There has been a significant change in sentiment towards offshore jurisdictions as investors have become more conscious of the importance of the protections afforded by establishing funds in a regulated jurisdiction. The liquidity crisis focused investors' attention on the need for concentration, borrowing and counterparty risks to be addressed in fund documentation. Investors are also aware of the importance of having independent valuations and custody arrangements for funds, as well as regulation protecting shareholders' rights...

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