Chapter VII

Offshore Funds

62. —In this Chapter and the Fifth and Sixth Schedules—

“account period” shall be construed in accordance with subsections (8), (9) and (10) of section 66 ;

“disposal” shall be construed in accordance with section 63 (2);

“distributing fund” shall be construed in accordance with subsections (2) and (3) of section 66 ;

“equalisation account” has the meaning assigned to it in section 64 (1);

“Irish equivalent profits” has the meaning it has in paragraph 5 of the Fifth Schedule ;

“material interest” shall be construed in accordance with section 65 (2);

“non-qualifying fund” has the meaning assigned to it by section 66 (1);

“offshore funds” has the meaning assigned to it in section 65 (1);

“offshore income gain” shall be construed in accordance with paragraphs 5 and 6 (1) of the Sixth Schedule ;

“the Principal Act” means the Capital Gains Tax Act, 1975 .

63. —(1) This Chapter applies to a disposal by any person of an asset if—

(a) at the time of the disposal, the asset constitutes a material interest in an offshore fund which is or has at any material time been a non-qualifying offshore fund, or

(b) at the time of the disposal, the asset constitutes an interest in a company resident in the State or in a unit trust scheme, the trustees of which are at that time resident in the State and at a material time on or after the 1st day of January, 1991, the company or unit trust scheme was a non-qualifying offshore fund and the asset constituted a material interest in that fund,

and for the purpose of determining whether the asset disposed of falls within paragraph (b) above, paragraph 2 (2) of Schedule 2 to the Principal Act shall have effect as it has effect for the purposes of that Act.

(2) Subject to the following provisions of this section and section 64 there is a disposal of an asset for the purposes of this Chapter if there would be such a disposal for the purposes of the Principal Act.

(3) Notwithstanding anything in paragraph (b) of subsection (1) of section 14 (as amended by section 6 of the Capital Gains Tax (Amendment) Act, 1978 ) of the Principal Act, where a person dies and the assets of which he was competent to dispose include an asset which is or has at any time been a material interest in a non-qualifying offshore fund, then, for the purposes of this Chapter (other than section 64 ) that interest shall, immediately before the acquisition referred to in paragraph (a) of subsection (1) of the said section 14, be deemed to be disposed of by the deceased for such a consideration as is mentioned in that subsection:

Provided that nothing in this subsection shall affect the determination, in accordance with subsection (1), of the question whether that deemed disposal is one to which this Chapter applies.

(4) Subject to subsection (3), section 14 of the Principal Act shall apply for the purposes of this Chapter as it applies for the purposes of that Act, and the reference in that subsection to the assets of which a deceased person was competent to dispose shall be construed in accordance with subsection (5) of that section.

(5) Notwithstanding anything in paragraph 4 or 5 of Schedule 2 to the Principal Act, in any case where—

(a) a company (hereafter in this subsection referred to as “the acquiring company”) issues shares or debentures in exchange for shares in or debentures of another company (hereafter in this subsection referred to as “the acquired company”) and the acquired company is or was at a material time a non-qualifying offshore fund and the acquiring company is not such a fund, or

(b) persons are to be treated, in consequence of an arrangement, as exchanging shares, debentures or other interests in or of an entity which is or was at a material time a non-qualifying offshore fund for assets which do not constitute interests in such a fund,

then, subparagraph (1) of paragraph 4 of that Schedule shall not apply for the purposes of this Chapter.

(6) In any case where, apart from subsection (5), paragraph 4 (1) of Schedule 2 to the Principal Act would apply, the exchange concerned of shares, debentures or other interests in or of a non-qualifying offshore fund shall for the purposes of this Chapter constitute a disposal of interests in the offshore fund for a consideration equal to their market value at the time of the exchange.

(7) (a) For the purposes of this section a material time in relation to the disposal of an asset is any time on or after—

(i) the 6th day of April, 1990, where the asset was acquired on or before that date, or

(ii) where the asset was not so acquired, the earliest date on which any relevant consideration was given for the acquisition of the asset.

(b) In this subsection “relevant consideration” means consideration which, assuming the application to the disposal of Part II of the Principal Act, would fall to be taken into account in determining the amount of the gain or loss accruing on the disposal, whether that consideration was given by or on behalf of the person making the disposal or by or on behalf of a predecessor in title of his whose acquisition cost represents, directly or indirectly, the whole or any part of the acquisition cost of the person making the disposal.

64. —(1) For the purposes of this Chapter, an offshore fund operates equalisation arrangements if, and at a time when, arrangements are in existence which have the result that where—

(a) a person acquires by way of initial purchase a material interest in the fund at some time during a period relevant to the arrangements, and

(b) the fund makes a distribution for a period which begins before the date of his acquisition of that interest,

the amount of that distribution which is paid to him (assuming he still is retaining that interest) will include a payment of capital which is debited to an account (hereafter in this Chapter and the Fifth and Sixth Schedules referred to as “the equalisation account”) maintained under the arrangements and which is determined by reference to the income which had accrued to the fund at the date of his acquisition.

(2) For the purposes of this section, a person acquires an interest in an offshore fund by way of initial purchase if—

(a) his acquisition is by way of subscription for or allotment of new shares, units or other interests issued or created by the fund, or

(b) his acquisition is by way of direct purchase from the persons concerned with the management of the fund and their sale to him is made in their capacity as managers of the fund.

(3) Without prejudice to section 63 (1), this Chapter applies, subject to the following provisions of this section, to a disposal by any person of an asset if—

(a) at the time of the disposal, the asset constitutes a material interest in an offshore fund which at that time is operating equalisation arrangements,

(b) the fund is not and has not at any material time (within the meaning of section 63 (7)) been a non-qualifying offshore fund, and

(c) the proceeds of the disposal do not fall to be taken into account as a trading receipt.

(4) This Chapter shall not, by virtue of subsection (3), apply to a disposal if—

(a) it takes place during such a period as is mentioned in subsection (1) (a), and

(b) throughout so much of that period as precedes the disposal, the income of the offshore fund concerned has been of such a nature as is referred to in paragraph 3 (1) of the Fifth Schedule .

(5) An event which, apart from paragraph 2 (2) of Schedule 2 to the Principal Act, would constitute a disposal of an asset shall constitute such a disposal for the purpose of determining whether, by virtue of subsection (3), there is a disposal to which this Chapter applies.

(6) The reference in subsection (5) to paragraph 2 (2) of Schedule 2 to the Principal Act shall be deemed to include a reference to that paragraph as applied by paragraphs 2A or 4 of that Schedule but not as applied by paragraph 3 of that Schedule.

65. —(1) In this Chapter references to a material interest in an offshore fund are references to such an interest in any of the following, namely—

(a) a company which is resident outside the State,

(b) a unit trust scheme the trustees of which are not resident in the State, and

(c) any arrangements which do not fall within paragraph (a) or (b), which take effect by virtue of the law of a territory outside the State and which, under that law, create rights in the nature of co-ownership (without restricting that expression to its meaning in the law of the State),

and any reference in this Chapter to an offshore fund is a reference to any such company, unit trust scheme or arrangements in which any person has an interest which is a material interest.

(2) Subject to the following provisions of this section, a person's interest in a company, unit trust scheme or arrangements is a material interest if, at the time when he acquired the interest, it could reasonably be expected that, at some time during the period of 7 years beginning at the time of his acquisition, he would be able to realise the value of the interest (whether by transfer, surrender or in any other manner).

(3) For the purposes of subsection (2), a person shall be deemed to be able to realise the value of an interest if he can realise an amount which is reasonably approximate to that portion which the interest represents (directly or indirectly) of the market value of the assets of the company or, as the case may be, of the assets subject to the scheme or arrangements.

(4) For the purposes of subsections (2) and (3)—

(a) a person shall be deemed to be able to realise a particular amount if he is able to obtain that amount either in money or in the form of assets to the value of that amount, and

(b) if at any time an interest in an offshore fund has a market value which is substantially greater than the portion which the interest represents, as mentioned in subsection (3), of the market value at that time of the assets concerned, the ability to realise such a market value of the interest shall not be regarded as an ability to realise such an amount as is referred to in that subsection.

(5) An interest in a company, scheme or arrangements shall be deemed not to be a material interest if it is either—

(a) an interest in respect of any loan capital or debt issued or incurred for money which, in the ordinary course of a business of banking, is lent by a person carrying on that business, or

(b) a right arising under a policy of insurance.

(6) Shares in a company falling within subsection (1) (a) (in this section referred to as “the overseas company”) shall not constitute a material interest if—

(a) the shares are held by a company and the holding of them is necessary or desirable for the maintenance and development of a trade carried on by the company or a company associated with it,

(b) the shares confer at least 10 per cent. of the total voting rights in the overseas company and a right, in the event of a winding up, to at least 10 per cent. of the assets of that company remaining after the discharge of all liabilities having priority over the shares,

(c) not more than ten persons hold shares in the overseas company and all the shares in that company confer both voting rights and a right to participate in the assets on a winding up, and

(d) at the time of its acquisition of the shares, the company had such a reasonable expectation as is referred to in subsection (2) by reason only of the existence of either or both—

(i) an arrangement under which, at some time within the period of 7 years beginning at the time of acquisition, that company may require the other participators to purchase its shares, and

(ii) provisions of either an agreement between the participators or the constitution of the overseas company under which the company will be wound up within a period which is, or is reasonably expected to be, shorter than the period referred to in subsection (2),

and in this paragraph “participators” means the persons holdings shares falling within paragraph (c).

(7) For the purposes of subsection (6) (a), a company is associated with another company if one of them has control of the other within the meaning of section 102 of the Corporation Tax Act, 1976 , or both of them are under the control, within the meaning of that section, of the same person or persons.

(8) An interest in a company falling within subsection (1) (a) shall be deemed not to be a material interest at any time when the following conditions are satisfied, namely—

(a) that the holder of the interest has the right to have the company wound up, and

(b) that, in the event of a winding up, the holder is, by virtue of the interest and any other interest which he then holds in the same capacity, entitled to more than 50 per cent. of the assets remaining after the discharge of all liabilities having priority over the interest or interests concerned.

(9) The market value of any asset for the purposes of this Chapter shall be determined in like manner as it would be determined for the purposes of the Principal Act except that, in the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 49(5) of that Act shall apply with any necessary modifications for determining the market value of the interest for the purposes of this Chapter.

66. —(1) For the purposes of this Chapter, an offshore fund is a non-qualifying fund except during an account period of the fund in respect of which the fund is certified by the Revenue Commissioners as a distributing fund.

(2) An offshore fund shall not be certified as a distributing fund in respect of an account period unless, with respect to that period, the fund pursues a full distribution policy, within the meaning of Part I of the Fifth Schedule .

(3) Subject to Part II of the Fifth Schedule , an offshore fund shall not be certified as a distributing fund in respect of any account period if, at any time during that period—

(a) more than 5 per cent. by value of the assets of the fund consists of interests in other offshore funds, or

(b) subject to subsections (4) and (5), more than 10 per cent. by value of the assets of the fund consists of interests in a single company, or

(c) the assets of the fund include more than 10 per cent. of the issued share capital of any company or of any class of that share capital, or

(d) subject to subsection (6), there is more than one class of material interest in the offshore fund and they do not all receive proper distribution benefits, within the meaning of subsection (7).

(4) For the purposes of subsection (3) (b), in any account period the value, expressed as a percentage of the value of all the assets of an offshore fund, of that portion of the assets of the fund which consists of an interest in a single company shall be determined as at the most recent occasion (whether in that account period or an earlier one) on which the fund acquired an interest in that company for consideration in money or money's worth; but for this purpose there shall be disregarded any occasion—

(a) on which the interest acquired constituted the new holding for the purposes of paragraph 2 of Schedule 2 to the Principal Act, including that paragraph as applied by paragraph 3 or 4 of that Schedule, and

(b) on which no consideration fell to be given for the interest acquired, other than the interest which constituted the original shares for the purposes of the said paragraph 2, including that paragraph as so applied.

(5) Except for the purpose of determining the total value of the assets of an offshore fund, an interest in a company shall be disregarded for the purposes of subsection (3) (b) if—

(a) the company carries on a banking business in the State or elsewhere which provides current or deposit account facilities in any currency for members of the public and bodies corporate, and

(b) the interest consists of a current or deposit account provided in the normal course of the company's banking business.

(6) There shall be disregarded for the purposes of subsection (3) (d) any interests in an offshore fund which—

(a) are held solely by persons employed or engaged in or about the management of the assets of the fund,

(b) carry no right or expectation to participate, directly or indirectly, in any of the profits of the fund, and

(c) on a winding up or on redemption, carry no right to receive anything other than the return of the price paid for the interests.

(7) Where in any account period of an offshore fund there is more than one class of material interests in the fund, then the classes of interests shall not (for the purposes of subsection (3) (d)) all receive proper distribution benefits unless, were each class of interests and the assets which that class represents interests in and assets of a separate offshore fund, each of those separate funds would (with respect to that period) pursue a full distribution policy, within the meaning of Part I of the Fifth Schedule .

(8) For the purposes of this Chapter and the Fifth Schedule , an account period of an offshore fund shall begin—

(a) on the 6th day of April, 1990, or if it is later, whenever the fund begins to carry on its activities, and

(b) whenever an account period of the fund ends without the fund then ceasing to carry on its activities.

(9) For the purposes of this Chapter and the Fifth Schedule , an account period of an offshore fund shall end on the first occurrence of any of the following—

(a) the expiration of 12 months from the beginning of the period;

(b) an accounting date of the fund or, if there is a period for which the fund does not make up accounts, the end of that period;

(c) the fund ceasing to carry on its activities.

(10) For the purposes of this Chapter and the Fifth Schedule —

(a) an account period of an offshore fund which is a company falling within section 65 (1) (a) shall end if, and at the time when, the company ceases to be resident outside the State, and

(b) an account period of an offshore fund which is a unit trust scheme falling within section 65 (1) (b) shall end if, and at the time when, the trustees of the scheme become resident in the State.

(11) The provisions of Part III , and the supplementary provisions contained in Part IV , of the Fifth Schedule shall have effect with respect to the procedure for and in connection with the certification of an offshore fund as a distributing fund.

67. —(1) If a disposal to which this Chapter applies gives rise, in accordance with the Sixth Schedule , to an offshore income gain, then, subject to the provisions of this section, the amount of that gain shall be treated for all the purposes of the Tax Acts as—

(a) income arising at the time of the disposal to the person making the disposal, and

(b) constituting profits or gains chargeable to tax under Case IV of Schedule D for the chargeable period (within the meaning of paragraph 1 (2) of the First Schedule to the Corporation Tax Act, 1976 ) in which the disposal is made.

(2) Subject to subsection (3), section 4 of the Principal Act and section 8 (2) (b) of the Corporation Tax Act, 1976 , shall have effect in relation to income tax or corporation tax in respect of offshore income gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains.

(3) In the application of section 4 of the Principal Act in accordance with subsection (2) of this section, paragraph (c) of subsection (2) of the said section 4 shall have effect with the omission of the words “situated in the State”.

(4) In the case of individuals resident or ordinarily resident but not domiciled in the State subsections (3) and (4) of section 4 of the Principal Act shall have effect in relation to income tax chargeable by virtue of subsection (1) on an offshore income gain as they have effect in relation to capital gains tax in respect of gains accruing to such individuals from the disposal of assets situated outside the State.

(5) (a) A charity shall be exempt from tax in respect of an offshore income gain if the gain is applicable and applied for charitable purposes; but if property held on charitable trusts ceases to be subject to charitable trusts and that property represents directly or indirectly an offshore income gain, the trustees shall be treated as if they had disposed of and immediately reacquired that property for a consideration equal to its market value, any gain (calculated in accordance with the Sixth Schedule ) accruing being treated as an offshore income gain not accruing to a charity.

(b) In paragraph (a) “charity” has the same meaning as it has in section 334 of the Income Tax Act, 1967 , and “market value” has the same meaning as it has in the Principal Act.

(6) In any case where—

(a) a disposal to which this Chapter applies is a disposal of settled property, within the meaning of the Principal Act, and

(b) for the purposes of the Principal Act, the general administration of the trusts is ordinarily carried on outside the State and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the State,

then subsection (1) shall not apply in relation to any offshore income gain to which the disposal gives rise.

68. —(1) Section 36 of the Principal Act shall, in relation to its application to offshore income gains, have effect as if—

(a) for any reference to a chargeable gain there were substituted a reference to an offshore income gain,

(b) for the reference in subsection (6) to capital gains tax there were substituted a reference to income tax or corporation tax, and

(c) paragraphs (b) and (c) of subsection (4) and subsection (7) were omitted.

(2) Subject to subsection (3), section 37 of the Principal Act shall, in relation to its application to offshore income gains, have effect as if—

(a) for any reference to a chargeable gain there were substituted a reference to an offshore income gain,

(b) in subsection (2)—

(i) for “this Act” there were substituted “the Tax Acts”, and

(ii) for “capital gains tax under section 5 (1)” there were substituted “income tax by virtue of section 67 of the Finance Act, 1990”,

and

(c) in subsection (5)—

(i) for “any capital gains payable” there were substituted “any income tax or corporation tax payable”, and

(ii) for “for the purposes of income tax” there were substituted “for the purposes of income tax, corporation tax”.

(3) If, in any year of assessment—

(a) under subsection (3) of section 37 of the Principal Act, as it applies apart from subsection (2) of this section, a chargeable gain falls to be attributed to a beneficiary, and

(b) under the said subsection (3), as applied by subsection (2) of this section, an offshore income gain also falls to be attributed to him,

section 37 shall have effect as if it required offshore income gains to be attributed before chargeable gains.

(4) Paragraph 7 of Schedule 4 to the Principal Act shall have effect in relation to offshore income gains as if—

(i) for “chargeable gains” there were substituted “offshore income gains”, and

(ii) for “capital gains tax under the said section 36 or 37” there were substituted “income tax or corporation tax under the said section 36 or 37, as applied by section 68 of the Finance Act, 1990”.

(5) Subject to subsection (6), for the purpose of determining whether an individual ordinarily resident in the State has a liability for income tax in respect of an offshore income gain arising on a disposal to which this Chapter applies where the disposal is made by a person resident or domiciled out of the State—

(a) sections 57 and 58 of the Finance Act, 1974 , shall apply as if the offshore income gain arising to the person resident or domiciled out of the State constituted income becoming payable to him, and

(b) any reference in the said sections 57 and 58 to income of, or payable or arising to, such a person accordingly includes a reference to the offshore income gain arising to him by reason of the disposal to which this Chapter applies.

(6) To the extent that an offshore income gain is treated, by virtue of subsection (1) or (2), as having accrued to any person resident or ordinarily resident in the State, that gain shall not be deemed to be the income of any individual for the purposes of section 57 or 58 of the Finance Act, 1974 , or Chapters I and II of Part XXVIII of the Income Tax Act, 1967 .

69. —(1) The provisions of this section shall apply where a disposal (being a disposal to which this Chapter applies) gives rise to an offshore income gain and, if that disposal also constitutes the disposal of the interest concerned for the purposes of the Principal Act, then that disposal is in this section referred to as “the disposal for the purposes of the Principal Act”.

(2) So far as relates to an offshore income gain which arises on a material disposal (within the meaning of Part I of the Sixth Schedule ) subsections (3) and (4) shall have effect in relation to the disposal for the purposes of the Principal Act in substitution for paragraph 2 (1) of Schedule 1 to that Act.

(3) Subject to the following provisions of this section, in the computation in accordance with Part I of Schedule 1 to the Principal Act (subject to the further provisions in Schedules 2 and 3 to that Act) of any gain accruing on the disposal for the purposes of the Principal Act, a sum equal to the offshore income gain shall be deducted from the sum which would otherwise constitute the amount or value of the consideration for the disposal.

(4) Where the disposal for the purposes of the Principal Act is of such a nature that, by virtue of paragraph 6 of Schedule 1 to that Act, an apportionment falls to be made of certain expenditure, then no deduction shall be made by virtue of subsection (3) in determining, for the purposes of the apportionment in subparagraph (2) of the said paragraph 6, the amount or value of the consideration for the disposal.

(5) If the disposal for the purposes of the Principal Act forms part of a transfer to which paragraph 6 of Schedule 2 to that Act applies then, for the purposes of subparagraph (4) of that paragraph, the value of the whole of the consideration received by the transferor in exchange for the business shall be taken to be what it would be if the value of the consideration (other than shares so received by the transferor) were reduced by a sum equal to the offshore income gain.

(6) Where the disposal to which this Chapter applies constitutes such a disposal by virtue of section 63 (6) or 64 (5), then the Principal Act shall have effect as if an amount equal to the offshore income gain to which the disposal gives rise were given (by the person making the exchange concerned) as consideration for the new holding, within the meaning of paragraph 2 (1) of Schedule 2 to that Act.

(7) In any case where—

(a) a disposal to which this Chapter applies by virtue of subsection (3) of section 64 is made otherwise than to the offshore fund concerned or to the persons referred to in subsection (2) (b) of that section, and

(b) subsequently, a distribution which is referable to the asset disposed of is paid either to the person who made the disposal or to a person connected with him, and

(c) the disposal gives rise (in accordance with Part II of the Sixth Schedule ) to an offshore income gain,

then, for the purposes of the Tax Acts, the amount of the first distribution falling within paragraph (b) shall be taken to be reduced or, as the case may be, extinguished by deducting therefrom an amount equal to the offshore income gain referred to in paragraph (c) and, if that amount exceeds the amount of that first distribution, the balance shall be set against the second and, where necessary, any subsequent distribution falling within paragraph (b), until the balance is exhausted.

(8) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of subsection (7) (b).