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Funds Update - Ireland
Quarterly Update | July - September 2016

1 Legal & Regulatory

1.1 UCITS Update

1.2 AIFMD Update

1.3 CP86

1.4 EMIR Update

1.5 Director Time Commitments Letter

1.6 Companies (Accounting) Bill 2016

1.7 ICAV Winding Up Forms and Guidance

1.8 Asset Segregation and Custody Services under AIFMD and UCITS V

1.9 Madoff Litigation – UCITS Investor Rights and Depositary Liability

1.10 Capital Requirements Regulation

1.11 MiFID II/MiFIR Update

1.12 PRIIPs KID Regulation

1.13 European Venture Capital Funds and Social Entrepreneurship Funds

1.14 SFT Regulation Consultation

1.15 Benchmark Regulation

1.16 Cyber Risk in Financial Firms

1.17 EU Capital Markets Union

1.18 CSDR: Regulating Central Securities Depositories

1.19 IOSCO Consultation on Good Practices for the Termination of Funds

1.20 IOSCO Report on Good Practice for Fees and Expenses of CISs

1.21 Investor Money Regulations 

1.22 Investment Funds Statistics: Q2 2016

1.23 Anti-Money Laundering Update

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2 Tax

2.1 Irish Property Assets – Changes to Funds and Section 110 Companies

2.2 US/Ireland Treaty Update

2.3 Brazil Update

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3 Listings

3.1 Market Abuse Regulation

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1 Legal & Regulatory

1.1 UCITS Update

There have been a number of developments over the quarter:

UCITS V 

The European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2016 implemented the UCITS V Directive 2014/91/EU ("UCITS V") into law in Ireland. European Commission Delegated Regulation ((EU) 2016/438 supplementing UCITS V with regard to obligations of depositaries (the "UCITS V Level 2 Regulation") applies from 13 October 2016.

Asset segregation and custody services

On 15 July 2016 ESMA published a call for evidence on asset segregation and custody services under AIFMD and UCITS V (see 1.7 below for further detail).

ESMA and Central Bank Q&As

On 19 July 2016, ESMA published an updated version of its Q&A on the application of the UCITS Directive. It includes one new Q&A on the impact of EMIR on the UCITS framework on the valuation of centrally cleared OTC derivatives by UCITS management companies. 

On 12 September 2016 the Central Bank published a fourteenth edition of its UCITS Q&A. It includes new Q&As in respect of umbrella funds and cash accounts and a new Q&A on the submission of the second set of half-yearly accounts by UCITS management companies/depositaries.

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1.2 AIFMD Update

There have been a number of developments in relation to the Alternative Investment Fund Managers Directive 2011/61/EU ("AIFMD") over this quarter:

Asset segregation and custody services

On 15 July 2016 ESMA published a call for evidence on asset segregation and custody services under AIFMD and UCITS V (see 1.7 below for further detail). 

EMSA advice on AIFMD passport to 12 non-EU jurisdictions

On 19 July 2016, ESMA published its advice (ESMA/2016/1140) on the application of the EU passport under AIFMD to non-EU alternative investment fund managers ("AIFMs") and alternative investment funds ("AIFs"). Non-EU AIFMs and non-EU AIFs managed by EU AIFMs are subject to the national private placement regime ("NPPR") of each of the Member States where the AIFs are marketed or managed. (A slightly revised version was published on 12 September 2016 which provides additional information on the Isle of Man.) Article 67(1) of the AIFMD requires ESMA to produce guidance on the application of the passport (which is currently reserved to EU AIFMs and AIFs) to non-EU AIFMs and AIFs. In the advice, ESMA sets out the results of its assessments of 12 non-EU jurisdictions and concludes that:

(a) There are no significant obstacles impeding the application of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland. 

(b) There are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore. However, it is noted that both jurisdictions have regimes that facilitate the access of UCITS from only certain EU Member States to retail investors in their territories.

(c) There are no significant obstacles regarding investor protection and the monitoring of systemic risk which would impede the application of the AIFMD passport to the US. There is no significant obstacle for funds marketed by managers to professional investors that do not involve any public offering. However, an extension of the AIFMD passport to the US risks an un-level playing field between EU and non-EU AIFMs in the case of funds marketed by managers to professional investors which involve a public offering. The EU should consider options to mitigate this risk

(d) It cannot give advice on the criteria on investor protection and effectiveness of enforcement in Bermuda or the Cayman Islands, as both are currently implementing new regimes and it was difficult to assess whether the investor protection criterion was met in relation to the Isle of Man, given the absence of an AIFMD-like regime.

The Commission, Parliament and the Council will now consider the advice. 

On 11 October 2016, Steven Maijoor, ESMA Chair told the Economic and Monetary Affairs Committee ("ECON") of the European Parliament that ESMA in the short term is focusing on its assessment of Bermuda and the Cayman Islands in order to decide on whether to extend the passport to them; will assess an additional group of non-EU countries when it has more clarity on the next steps envisaged by co-legislators; and will also focus on putting in place a framework in case the passport is extended to one or more non-EU countries.

For more information see our client update, ESMA Advice Suggests Further Deferral of AIFMD Passport for Third Countries

Central Bank and ESMA Q&As

On 19 July 2016, ESMA published an updated version of its Q&A paper on the application of AIFMD. This includes one new Q&A relating to the impact of EMIR on the AIFMD framework regarding the valuation of centrally cleared OTC derivatives by AIF managers.

On 12 September 2016, the Central Bank published a twentieth edition of its AIFMD Q&A. which includes new Q&As in respect of umbrella funds and cash accounts.

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1.3 CP86 

The period for industry feedback on the Central Bank's third consultation on fund management company effectiveness (part of the CP86 process) closed on 25 August 2016. Maples and Calder responded to this consultation. This response endorsed the Irish Funds response and also addressed a number of specific points, in particular, the director location rule. This followed some direct engagement Maples had with the Central Bank on these matters. If you would like to receive a copy of the Maples and Calder response or the Irish Funds response, please get in touch with your usual contact. 

Final guidance is expected to be issued by the Central Bank shortly.

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1.4 EMIR

The European Market Infrastructure Regulation (Regulation on over the counter ("OTC") derivative transactions, central counterparties ("CCPs") and trade repositories (Regulation 648/2012)) ("EMIR") is relevant to all Irish funds trading in financial derivative instruments ("FDI") whether on an exchange or otherwise. UCITS and AIFs are financial counterparties for EMIR purposes, subject to the full scope of EMIR obligations.

There have been a number of developments over the quarter:

On 13 July 2016, ESMA published a consultation paper on delaying the phase-in period by two years for the EMIR clearing obligation for financial counterparties with a limited volume of activity.

On 23 July 2016 the European Commission Implementing Decision ((EU) 2016/1073) on the equivalence of US designated contract markets ("DCMs") under of EMIR came into force. As a result the boards of trade designated by the Commodity Futures Trading Commission as contract markets in the US are considered as equivalent to regulated markets as defined in the Markets in Financial Instruments Directive and a US DCM executed derivatives contract will not be considered to be an OTC contract under EMIR and, as such, not subject to EMIR central clearing requirements.

On 27 July 2016 ESMA issued an updated Q&A on EMIR. This includes a new answer on reporting trades cleared by a clearing house which is not a CCP under the EMIR definition - those entities should not be identified in the “CCP ID” field of EMIR reports. Also, in the case of trades that are executed in an anonymised market and cleared by a clearing house, the counterparty executing the transaction should request the trading venue/clearing house that matches the counterparties to disclose the identity of the other counterparty before the reporting deadline.

The European Union (European Market Infrastructure) (Amendment) Regulations 2016 signed on 29 July 2016 give effect to Regulation (EU) 2015/2205 (on regulatory technical standards ("RTS")  on central clearing for interest rate derivatives under Article 5(2) of EMIR) and Regulation (EU) 2016/592 supplementing EMIR relating to RTS on the clearing obligation for certain credit derivative contracts) in Ireland.

On 9 August 2016, Commission Delegated Regulation ((EU) 2016/1178) supplementing EMIR as regards RTS on the clearing obligation came into force. Under this, certain OTC credit derivative contracts denominated in specific European currencies (namely the Norwegian Krone, the Polish Zloty and Swedish Krona) must be cleared through CCPs.

On 30 September 2016 ESMA published a consultation paper on draft RTS and draft implementing technical standards ("ITS") implementing the Regulation on reporting and transparency of securities financing transactions (see 1.14 below). In it ESMA also proposes amendments to existing technical standards implementing requirements relating to trade repositories under EMIR and is consulting on a consolidated amended text of RTS on registration of trade repositories under EMIR and amendments to RTS on access levels under EMIR.

On 30 September 2016, following a review of EMIR Regulatory Returns received from non-financial counterparties with significant derivatives exposures, the Central Bank issued a letter to industry. In summary, the letter emphasises that when the reporting obligation is delegated, the Central Bank expects entities to (i) receive regular feedback from the delegate; (ii) review rejection reports issued by the trade repository and ensure corrected submissions are made on a timely basis; and (iii) contractually agree an obligation on the part of the delegate to forward the details of rejected trade submissions and take appropriate remedial action. The Central Bank also identified issues with the reporting of legal entity identifiers and unique trade identifiers (which should be agreed in advance with the trading counterparty if necessary).  (Note that an EMIR Regulatory Return is yet to be introduced for financial counterparties.)

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1.5 Director Time Commitments Letter

On 8 September 2016 the Central Bank issued an update to all fund service providers and fund boards on the director time commitments thematic review. The letter highlights significant progress in reducing concentrations of directorships and areas for directors to consider when reviewing their capacity to fulfil their directorship roles.

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1.6 Companies (Accounting) Bill 2016

This new Bill gives further effect to Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC and repealing Council Directives 78/660/EEC and 83/349/EEC. It also amends the Companies Act 2014. A key change in the Bill is that many Irish unlimited companies will be required to publicly file their financial statements in the Companies Registration Office. It is currently making its way through the legislative process and is expected to be enacted by the end of 2016.

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1.7 ICAV Winding Up Forms and Guidance

On 1 July 2016 the Central Bank published additional forms on its website relating to the winding up of a registered and authorised Irish collective asset-management vehicle. Additional information on the winding-up process has also been added.

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1.8 Asset Segregation and Custody Services under AIFMD and UCITS V

On 15 July 2016 ESMA published a call for evidence on asset segregation and custody services under AIFMD and UCITS V. UCITS V has recently introduced asset segregation requirements under the UCITS framework that are broadly aligned to AIFMD. Therefore, asset segregation is relevant to AIFs and UCITS. Consequently ESMA issued this consultation to:

• Gather further evidence on the views expressed by the majority of respondents to the December 2014 consultation on asset segregation under AIFMD.

• Cover the UCITS V asset segregation rules as well as any residual uncertainty on how the depositary delegation rules should apply to central securities depositaries.

• On 27 September 2016 ESMA published the responses it received. ESMA intends to finalise its work on asset segregation by the end of 2016.

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1.9 Madoff Litigation - UCITS Investor Rights and Depositary Liability

The Irish Commercial Court has recently clarified a number of issues regarding an Irish investment company authorised as a UCITS fund which has relevance for investment funds generally (Alico Life International Ltd v Thema International Fund PLC [2016] IEHC 363). It held that:

(a) A "unit-holder" in the context of an investment company UCITS means a shareholder in that company, and therefore, investors who hold units in an investment company UCITS through a nominee are not unit-holders. If they choose not to become unit-holders and instead invest via a nominee or other intermediary, it is their responsibility to ensure that the nominee ensures they are indirectly afforded the relevant benefits and protections under the UCITS Directive.

(b) A unit-holder in an investment company UCITS did not enjoy a direct right of action against the depositary/trustee under the UCITS Directive. (This reflects the position pre-UCITS V.)

For more information see our client update, Irish High Court Decision in Madoff Litigation – UCITS Investor Rights and Depositary Liability.  

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1.10 Capital Requirements Regulation

The Capital Requirements Regulation 575/2013/EU ("CRR") applies to credit institutions and investment firms and contains provisions relating to, among other things, own funds and capital requirements, large exposures, securitisations, liquidity, leverage and supervisory reporting.

On 26 July 2016 the European Banking Authority published a consultation paper on its draft guidelines on the treatment of connected clients under Article 4(1)(39) of the CRR for large exposures which closes on 26 October 2016. They focus on the issue of connected clients as defined in the CRR and reflect the developments in the area of shadow banking and large exposures both at EU and international level.

On 29 September 2016, EU Implementing Regulation 2016/1702 amending Implementing Regulation 680/2014 laying down ITS with regard to templates and instructions, under the CRR was published in the Official Journal of the EU. It enters into force on 19 October 2016 and will apply from 1 December 2016, with the first reporting reference date being 31 December 2016. 

EU Implementing Regulation 2016/1646 laying down ITS with regard to main indices and recognised exchanges enters into force on 4 October 2016.

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1.11 MiFID II/MiFIR Update

The Markets in Financial Instruments Directive (2014/65/EU) ("MiFID II") and the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") repeal the Markets in Financial Instruments Directive (2004/39/EC) ("MiFID"). They apply from 3 January 2018. 

On 7 July 2016 the Department of Finance invited submissions in relation to the MiFID II and MiFIR provisions where EU member states have discretion as to whether to apply those provisions and, if so, how in national legislation. Irish Funds submitted a response and the consultation closed on 21 September 2016.

On 25 July 2016, ESMA published an updated version of its Q&As on the application of the MiFID to the marketing and sale of financial contracts for difference and other speculative products to retail clients.

In July and August 2016 the European Commission adopted delegated regulations supplementing MiFID II with regard to RTS on information and requirements for the authorisation of investment firms; RTS on specifying organisational requirements of trading venues; RTS for the exchange of information between NCAs when co-operating in supervisory activities, on-the-spot verifications and investigations; RTS on the tick size regime for shares, depositary receipts and exchange-traded funds; supplementing MiFIR on RTS on transparency requirements for trading venues and investment firms in respect of equity instruments, and on transaction execution obligations in respect of certain shares on a trading venue or by a systematic internaliser and on the data standards and formats for financial instrument reference data, and technical measures in relation to arrangements to be made by ESMA  and on the information for registration of third-country firms and the format of information to be provided to clients; supplementing MiFID II and MiFIR on organisational requirements for investment firms engaging in algorithmic trading providing direct electronic access or acting as general clearing members; and reporting of transactions to competent authorities. The European Council and Parliament are currently considering them.

On 21 September 2016 ESMA published a discussion paper on the trading obligation for derivatives under MiFIR (which specifies two tests that must be applied to determine whether the trading obligation is applicable: the venue test and the liquidity test). ESMA wants views on how to calibrate the trading obligation and includes options on how to determine the trading obligation by applying both tests.

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1.12 PRIIPs KID Regulation

The Regulation on key information documents ("KIDs") for packaged retail and insurance-based investment products ("PRIIPs") ("PRIIPs KID Regulation") introduces a new pan-European pre-contractual product disclosure document for PRIIPS in EU Member States from 31 December 2016. The requirement to publish a PRIIPs KID will apply to UCITS fund managers by December 2019.

On 14 September 2016 the European Parliament rejected the European Commission's proposed Delegated Regulation supplementing the PRIIPs KID Regulation with regard to RTS on the presentation, content, review and revision of KIDs amid concerns related, among other things, to proposed formulas in the KID for predicting investment performance, which it considered potentially misleading. The Commission will have to propose new RTS for implementing the PRIIPs KID Regulation. The Parliament has also called on the Commission to consider postponing the application date of the PRIIPs KID Regulation to avoid the application of Regulation without RTS being in force in advance.

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1.13 European Venture Capital Funds and Social Entrepreneurship Funds

TThe European Venture Capital Funds Regulation 345/2013/EU ("EuVECA Regulation") sets out a marketing passport to allow fund managers to market qualifying venture capital funds to EU investors using the EuVECA designation. The European Social Entrepreneurship Funds Regulation 346/2013/EU ("EuSEF Regulation") sets out a marketing passport to allow fund managers to market qualifying social entrepreneurship funds to EU investors using the EuSEF designation. On 14 July 2016 the European Commission published proposed changes to both regulations. The amending Regulation: 

• Allows managers of collective investment undertakings authorised under Article 6 of AIFMD that manage portfolios of qualifying venture capital and qualifying entrepreneurship funds to use the "EuVECA" and "EuSEF" designations respectively in relation to the marketing of those funds in the EU. 

• Expands the range of qualifying investments permitted under the EuVECA Regulation to allow investment in small mid-caps and small and medium-sized enterprises listed on SME growth markets. 

• Prohibits competent authorities of host member states from imposing fees and charges relating to cross-border marketing of both types of funds. 

This proposal is part of the Commission's initiative to establish a capital markets union (see 1.16 below). On 13 September 2016, the European Central Bank published an opinion supporting the amending Regulation and recommending further amendments. On 14 September 2016 the Commission called on the European Parliament and the Council to finalise the amending Regulation by the end of 2016. On 26 September 2016, the Presidency of the Council published its first compromise proposal on it (dated 22 September 2016) highlighting changes to the European Commission's original proposal.

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1.14 SFT Regulation Consultation

The Regulation on securities financing transactions ("SFTs") EU/2015/2365 covers all forms of lending, borrowing and re-use of securities in the EU and in all the branches of counterparties to SFTs no matter where they are located. It requires market participants to report details of SFTs to an approved EU trade repository ("TR"). It came into force on 12 January 2016 with the exception of certain transitional provisions in Article 33.

On 30 September 2016, ESMA published a consultation paper on draft RTS and draft ITS implementing the Regulation which closes on 30 November. The main areas addressed are RTS and ITS on procedure and criteria for registration as a TR; and on use of internationally agreed reporting standards, the reporting logic and main aspects of the structure and content of SFT reports and RTS on requirements relating to transparency of data, data collection, aggregation and comparison and access levels for different competent authorities.

ESMA also proposes amendments to existing technical standards implementing requirements relating to TRs under EMIR (see 1.4 above for more details).

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1.15 Benchmark Regulation

The Benchmark Regulation 2016/1011/EU which entered into force on 30 June 2016 applies from 1 January 2018, with the exception of certain provisions (in Article 59) that apply from 30 June 2016 and one provision that applied from 3 July 2016.

On 13 August 2016, the Commission Implementing Regulation 2016/1368/EU establishing a list of critical benchmarks used in financial markets under the Benchmark Regulation entered into force.

On 29 September 2016 ESMA launched a consultation on its draft RTS/ITS applicable to benchmark contributors, administrators and NCAs which will implement the Benchmarks Regulation.

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1.16 Cyber Risk in Financial Firms

On 12 September 2016 the Central Bank issued guidance on IT risk management and cybersecurity for financial services firms which set out its expectations of firms in this area. The Central Bank expects boards and senior management of regulated firms to recognise their responsibilities for these issues and to put them among their top priorities. Firms must robustly address key issues such as alignment of IT and business strategy, outsourcing risk, change management, cybersecurity, incident response, disaster recovery and business continuity. Firms also need to make sure that they understand these risks and that they are managed effectively. 

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1.17 EU Capital Markets Union

In September 2015 the European Commission launched its capital markets union ("CMU") action plan to build a single market for capital. On 14 September 2016 it published a communication on accelerating the CMU reforms.  Some of the key announcements state that the Commission will:

(a) Support the co-legislators in reaching an agreement before the end of 2016 on modernising the prospectus rules.

(b) Ask the Parliament and the Council to finalise the proposed Regulation amending the EuVECA and the EuSEF Regulations by the end of 2016.

(c) Present an action plan on retail financial services to strengthen retail investor participation in capital markets and open up the EU market for retail financial services.

(d) Take action to remove the remaining barriers in the asset management sector, through legislative changes if necessary.

(e) Adopt a legislative proposal in 2017 to reinforce the EU dimensions of supervision.

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1.18 CSDR: Regulating Central Securities Depositories 

The Regulation on improving securities settlement and regulating CSDs (Regulation 909/2014/EU) ("CSDR") is in effect since September 2014. However, Article 3(1) will apply from 1 January 2023 to transferable securities issued after that date, and from 1 January 2025 to all transferable securities. Certain other implementing measures will apply from the date that they enter into force.

The European Union (Central Securities Depositories) Regulations 2016 came into force on 16 September 2016 and give full effect to CSDR in Ireland. They designate the Central Bank as the competent authority for the purposes of the CSDR and provides for powers for enforcement.

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1.19 IOSCO Consultation on Good Practices for the Termination of Funds

In August 2016 the Board of the International Organization of Securities Commissions ("IOSCO") published a consultation on Good Practices for the Termination of Investment Funds, which proposes a set of good practices on the voluntary termination process for investment funds. It is consulting on 15 practices categorised under the following headings:

(a) Disclosure at Time of Investment 

(b) Decision to Terminate

(c) Decision to Merge

(d) During the Termination Process

(e) Specific Types of Investment Funds

Comments are requested by 17 October 2016.

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1.20 IOSCO Report on Good Practice for Fees and Expenses of CISs

On 25 August 2016 IOSCO published a final report on good practice for fees and expenses of collective investment schemes ("CISs") (FR09/16). It is aimed at CISs whose shares or units can be sold to retail investors. In the report, IOSCO sets out 23 examples of good practice relating to issues including permitted or prohibited costs for a CIS; disclosure of fees and expenses to the investor, including use of electronic media; remuneration of the CIS operator; performance related fees; transaction costs hard and soft commissions on transactions and fees associated with CISs that invest in other funds and fee differentiation in multi-class CISs.

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1.21 Investor Money Regulations

The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 ("IMR") came into force on 1 July 2016. IMR applies to all Irish domiciled funds and any funds domiciled outside Ireland that have a service contract with a fund service provider regulated by the Central Bank. IMR strengthens the safeguards around investor monies by requiring fund service providers to put in place systems and controls which will give added protection to investors whose monies are held by them.

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1.22 Investment Funds Statistics: Q2 2016

The main points to note in the Central Bank's September 2016 update for Q2 2016 are:

(a) The net asset value of investment funds resident in Ireland increased by 4.3% (€61 billion) over the second quarter of 2016, reaching €1,457 billion.

(b) The second quarter saw strong investor inflows to investment funds amounting to €22 billion, continuing the general trend of recent quarters. Portfolio revaluations were strongly positive, at €39 billion, reflected in both debt and equity holdings.

(c) The value of total assets held by investment funds increased by €12 billion to €1,784 billion, amid strong inflows from investors and positive revaluations, although this was somewhat offset by the effect of a data reclassification.

(d) A strong second quarter for global equity markets saw positive revaluations of €11 billion in the equity holdings of investment funds despite global equity and currency market fluctuations late in the quarter following the Brexit vote.

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1.23 Anti-Money Laundering Update

EU Member States must transpose the Fourth Money Laundering Directive ((EU) 2015/849) ("MLD4") into national law by 26 June 2017 and the revised Wire Transfer Regulation ((EU) 2015/847) ("WTR") applies from the same date. On 5 July 2016 the European Commission adopted a proposal to amend MLD4 which aims to reinforce rules on anti-money laundering ("AML") to strengthen the fight against terrorist financing and tax avoidance and increase transparency on the ownership of companies and trusts. The amendments aim to:

(a) Apply enhanced checks towards high risk third countries. In this regard Delegated Regulation (EU) 2016/1675 supplementing MLD4 by identifying high risk third countries with strategic AML and counter-terrorist financing ("CTF") deficiencies came into force on 23 September 2016. The Commission intends to review the list at least three times a year after each Financial Action Task Force meeting assessing the latest developments.

(b) Bring virtual currency exchange platforms under the scope of the Directive.

(c) Strengthen transparency measures applicable to prepaid instruments by lowering thresholds for identification from €250 to €150 and widening customer verification requirements

(d) Enhance the powers of financial intelligence units and facilitate their cooperation by further aligning the rules for these units with the latest international standards.

(e) Give financial intelligence units swift access to information on the holders of bank-and payment accounts, through centralised registers/electronic data retrieval systems.

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2 Tax

2.1 Irish Property Assets - Changes to Funds and Section 110 Companies

The Irish Minister of Finance has announced a series of proposed changes which are relevant to investors and funds with exposure to Irish property assets. The changes relate to both "section 110 companies" and Irish qualifying investor alternative investment fund ("QIAIFs"). Maples and Calder are involved in the consultation process on the changes to both funds and section 110 companies and will be publishing further updates in the coming weeks.

Section 110 Companies

On 6 September 2016, the Minister announced proposals to amend the tax rules that apply to qualifying companies within section 110 of the Irish Taxes Consolidation Act 1997 ("Section 110 Companies"). The most recent draft of the proposed legislation was contained within the Finance Bill published on 20 October. 

The proposals apply exclusively to Section 110 Companies which hold loans or certain other financial assets which derive the greater part of their value from Irish real estate, whether residential or commercial ("Irish property assets"). There is no impact on other structures or asset classes, such as international financial assets or aircraft. The vast majority of structures involving Section 110 Companies are not impacted by these changes. 

Where the changes apply, they could restrict the ability to deduct payments of interest on profit participating notes, which could lead to additional Irish tax cost in the Section 110 Company. There are a number of safe harbours where interest deductibility is not restricted. Notably, loan origination and international capital markets transactions should not be impacted. 

Investors who use Section 110 Companies for Irish property assets by, for example, acquiring Irish loans, should continue to monitor the impact of the new proposals as the legislation develops. 

Regulated Irish Investment Funds

On 20 October 2016, the Irish Minister for Finance published draft legislation amending the tax treatment of regulated Irish funds which invest in Irish property. The legislation imposes a 20% withholding tax on distributions and redemptions from Irish property funds. 

The changes are highly targeted. They are intended to apply to QIAIFs, whether formed as ICAVs, unit trusts or investment limited partnerships, which hold Irish real estate or related assets. UCITS funds are not within the scope of the proposals. The proposals do not impact internationally focused Irish regulated funds which remain exempt from Irish taxation. However, for the relatively small number of Irish funds involved, the changes will require careful consideration as the legislation develops over coming weeks.

The draft legislation proposes a new tax regime for Irish funds holding Irish real estate (referred to as an Irish Real Estate Funds or "IREFs"). 

(a) IREFs are Irish regulated funds which derive at least 25% of their value from Irish real estate assets. In an umbrella fund, each sub-fund is considered to be a separate entity and the 25% threshold is applied to each sub-fund.

(b) Funds carrying on a property rental business, property development or trading in Irish land are within the scope of the proposals. Funds which hold unlisted shares or securities which derive their value from Irish land are also affected.

(c) Where an IREF makes an actual distribution or redeems units held by non-resident investors, it will impose a withholding tax of 20%. 

(d) If a fund disposes of land which it has held for at least five years, no withholding tax will apply to redemptions utilising those disposal proceeds. 

(e) No withholding tax will be applied where the payments / redemptions are made to an Irish pension fund, a regulated Irish fund or a life assurance fund and their EU equivalents.

(f) The new regime will apply to accounting periods beginning on or after 1 January 2017. The first tax returns relating to the 2017 financial year shall be due by 30 January 2018.

The current proposals will be reviewed and further amendments and clarifications may be introduced before the legislation is enacted into law. 

The proposed changes will materially alter the tax treatment of Irish property funds. Investors may wish to restructure their Irish real estate holdings in order to utilise standard corporate structures, or alternatively, to develop a Real Estate Investment Trust (REIT). This is an evolving area there may be additional developments. Please contact the Tax Group for the most up-to-date position in this regard.

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2.2 US/Ireland Treaty Update

Irish Revenue has begun discussions with Department of Finance and the US Treasury on updating certain elements of the 1997 Ireland / US Double Tax Treaty (the "Treaty").  This arises in the context of the OECD BEPS project and the publication by the US of the Revised US Model Tax Treaty and Preamble in 2016 ("Model Treaty").  Similar discussions are taking place with other countries like Luxembourg.

Irish Revenue and Department of Finance asked for written comments from interested parties from an Irish perspective and Maples and Calder were involved in making submissions through local industry bodies. 

Three features of the Treaty are particularly important for Irish investment funds.  First, Irish regulated funds are expressly regarded in the Treaty as resident in Ireland for treaty purposes.  Secondly, Irish exchange traded funds ("ETFs") are generally entitled to claim US treaty benefits where their shares are listed a recognised stock exchange.  Thirdly, the ownership test for Irish funds under the current Treaty could be restricted if all of the measures of the Model Treaty were implemented.  

The first formal meeting between Ireland and the US will take place in November 2016. Typically such negotiations take years rather than months. Moreover, negotiations will need to take account of Ireland's obligations under EU law and under the multilateral instrument by which certain elements of the OECD BEPS project are to be implemented into Ireland's treaty network.

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2.3 Brazil Update

On 14 September 2016, the Brazilian tax authorities added Ireland to its list of tax havens which means that transactions in Brazil involving Irish resident entities may be subject to increased withholding tax rates and stricter tax rules. 

The Irish authorities in Brazil have met with the Brazilian authorities a number of times since the announcement in order to request a suspension of the determination and the Irish government is committed to try to resolve the issue as soon as possible.  A number of professional bodies representing Brazilian industries that are affected by the change have also been liaising with the authorities.  

If you or your clients have been affected by this issue, the Tax Group would be happy to discuss the implications for your business and your options.

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3 Listings

3.1 Market Abuse Regulation

The Market Abuse Regulation (Regulation 596/2014) ("MAR") and the Directive on criminal sanctions for insider dealing and market manipulation (2014/57/EU) ("CSMAD") (together, MAD II) apply from 3 July 2016.  The European Union (Market Abuse) Regulations 2016 transposed CSMAD (and elements of MAR including the delegated acts) into Irish law. It repeals and replaces the previous EU market abuse regime and also extends the regime, currently applicable to funds listed on EU regulated markets, to funds listed on EU multilateral trading facilities, such as the Global Exchange Market ("GEM") operated by the Irish Stock Exchange in Ireland.

The new regime also imposes additional obligations relating to:

• delaying disclosure of inside information;

• form and content of insider lists; and

• restricted dealing periods for persons discharging managerial responsibilities ("PDMRs").

The Central Bank as the single administrative competent authority has issued revised Market Abuse Rules and Guidance on "Market Abuse Regulatory Framework" to align with MAR and the implementation of the new regime.

On 13 July 2016 ESMA published an updated version of its Q&As on MAR which includes a new Q&A on managers' transactions and in which circumstances the announcement of the interim or year-end financial results determines the timing of the closed period referred to in article 19(11) of MAR.

On 26 July 2016, ESMA published its draft ITS on sanctions and measures under MAR which prescribe how NCAs should notify ESMA annually of the investigations, sanctions and measures imposed in their member states. The Commission has three months to decide whether to endorse them.

ONR Q&A

On 12 September 2016, the Central Bank published the first edition of its Market Abuse Regulatory Framework Q&A which deals with queries in relation to its ONR (online reporting system). The questions included were:  

• Can PDMRs and persons closely associated with a PDMR ("PCAs") use the relevant issuer’s ONR account in order to notify the Central Bank of transactions under Article 19 of MAR?

• Does an individual that qualifies as a PDMR for multiple issuers have to register for separate ONR accounts? 

• Can an issuer, PDMR or PCA delegate the task of applying for access to the ONR to third parties?

• Can an issuer, PDMR or PCA delegate notification requirements under MAR to a third party, for example a legal representative or a company secretary? 

• Can PDMRs and PCAs provide the Central Bank with notifications under Article 19 of MAR even if the threshold specified in Article 19(8) of MAR has not yet been exceeded?

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