Funds Update - Ireland
Quarterly Update | April - June 2013

1 Legal

1.1 Alternative Investment Fund Managers Directive Update

1.2 EMIR Update

1.3 European Commission – Draft Proposal for Money Market Funds


1.5 AML: Criminal Justice Act 2013

1.6 European Long-Term Investment Funds: European Commission Proposal

2 Regulatory

2.1 Update to Fitness and Probity Section of Central Bank Website

2.2 Update to Central Bank UCITS and NU Notices and UCITS Application Forms

2.3 Implementation of ESMA’s Guidelines on ETFs and UCITS Issues

2.4 Amendment to Guidelines for Fund Administrators

2.5 Further Consultation on Inquiry Guidelines

2.6 Non-Resident Declaration and Equivalent Measures Information Note

2.7 Central Bank Issues Letter of Recommendation Following Thematic Review of Administration Firms Outsourcing Administration Activities in Relation to Collective Investment Schemes

2.8 ESMA Clarifies Pay Rules Applicable to Investment Firms

2.9 Principles for the Valuation of Collective Investment Schemes

2.10 IOSCO Publishes Principles for the Regulation of ETFs

2.11 Updates to CFTC Registration and Reporting Requirements

2.12 IFIA AML/CTF Sectoral Guidelines for Investment Funds

2.13 Market Abuse Update

2.14 Packaged Retail Investment Products

2.15 Capital Requirements Directive


2.17 Matthew Elderfield Resignation

2.18 ESMA's Work Programme for 2013

3 Tax

3.1 FATCA Consultation

3.2 REIT Update

3.3 PAYE on Director's Fees

4 Listing

4.1 Irish Stock Exchange Consultation on Listing Rules for REITs

4.2 Consultation on Updated Investment Funds Code of Listing Requirements and Procedures for Investment Funds

1 Legal

1.1 Alternative Investment Fund Managers Directive Update

There have been a number of developments:

(a) Report on Types of AIFMs. On 2 April 2013 the European Securities and Markets Authority ("ESMA") published a final report regarding draft regulatory technical standards ("Draft RTS") on types of alternative investment fund managers ("AIFMs"). This report includes a feedback statement from the consultation which was issued in December 2012.

The Draft RTS covers AIFMs managing open and closed-ended alternative investment funds ("AIFs") and the ‘proximity’ of the NAV with the price at which shares are redeemed. The European Commission have three months to decide whether to endorse them or not.

(b) Application Forms and Rules. On 15 May 2013 the Central Bank of Ireland ("Central Bank") issued the necessary application forms and accompanying rules to allow AIFMs and AIFs to apply for authorisation under the Alternative Investment Fund Managers Directive ("AIFMD").

In addition, the Central Bank has published a new format ‘AIF Rulebook’ which sets out text for the conditions which will be applied when authorisations are issued. The Central Bank also published a Q&A document which addresses the key questions about how the transition to the new regime will operate.

We expect the Central Bank to continuously update its Q&A and issue further guidance over the course of quarter three.

(c) Implementing Regulations. On 16 May 2013 the texts of two European Commission AIFMD implementing Regulations (the "Implementing Regulations") required under AIFMD were published in the Official Journal of the European Union (Regulation 447/2013 of 15 May 2013 establishing the procedure for AIFMs which choose to opt in under the AIFMD and Regulation 448/2013 of 15 May 2013 establishing a procedure for determining the member state of reference of a non-EU AIFM pursuant to the AIFMD).

Both came into force on 5 June 2013 and shall apply from 22 July 2013.

(d) ESMA Final Report: Guidelines on Key Concepts of the AIFMD. On 24 May 2013 ESMA published a final report containing guidelines on key concepts of AIFMD. The guidelines apply to AIFMs and national regulators and explain the concepts used in the alternative investment fund definition. The final report contains the feedback statement to ESMA's December 2012 consultation on the guidelines.

The guidelines will be translated and the final text published on ESMA's website. National regulators must confirm their compliance or intention to comply with ESMA within two months of the guidelines being published on the website (which is when the guidelines will apply from).

(e) ESMA Consultation on AIFMD Reporting Obligations. On 24 May 2013 ESMA also published a consultation on guidelines on reporting obligations under Articles 3 and 24 of AIFMD that closed on 1 July 2013. AIFMs have to report prescribed information on the portfolio of the AIFs they manage or market in the EU. A reporting template is set out in the AIFMD Commission Delegated Regulation (Regulation 231/2013), but ESMA wants to standardise the format and timing of information AIFMs send to their home state regulator.

(f) Global Supervisory Co-Operation on Alternative Investment Funds. On 30 May 2013 ESMA announced that it has approved co-operation arrangements between EU securities regulators, with responsibility for the supervision of alternative investment funds, including hedge funds, private equity and real estate funds, and 34 jurisdictions of their global counterparts (including but not limited to the Cayman Islands, the British Virgin Islands, Hong Kong, Singapore, and Dubai). ESMA has negotiated the agreements on behalf of all 27 EU Member State securities regulators as well as the authorities from Croatia, Iceland, Liechtenstein and Norway.

For further details please see our client update, Ireland: First EU Member State to Open AIFMD Application Process.

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1.2 EMIR Update

The European Market Infrastructure Regulation ("EMIR") (the Regulation on OTC derivatives, central counterparties ("CCPs") and trade repositories) (Regulation 648/2012) came into effect on 16 August 2012. It mandates the central clearing of eligible derivatives and risk mitigation procedures for non-centrally cleared OTC derivatives. It also introduces reporting requirements and establishes rules for CCPs and trade repositories. The European Commission has adopted implementing legislation based on technical standards drafted by ESMA in respect of most aspects of EMIR. These measures began to come into effect on 15 March 2013 on a phased basis. Recent developments this quarter are as follows:

(a) On 16 May 2013 the European Commission published a memo (dated 13 May 2013) on the practical implementation of the framework of EMIR to non-EU CCPs. It specifies how the recognition procedure for CCPs that are established outside the EU and wish to provide services to market participants established within the EU will be implemented.

(b) The European Commission has also requested ESMA to deliver draft regulatory technical standards on EMIR's extra-territorial application by the end of September 2013. Note that even where both counterparties are non-EU the clearing obligations and OTC risk mitigation techniques may apply in certain circumstances.

(c) On 24 May 2013 ESMA published a request for technical advice from the European Commission on possible delegated acts relating to the procedural rules for taking supervisory measures and imposing fines on trade repositories under EMIR. ESMA has until 31 December 2013 to deliver its advice to the Commission.

(d) On 6 June 2013 ESMA published an updated set of questions and answers on the implementation of EMIR. They are aimed at competent authorities to promote common supervisory approaches and practices to the application of EMIR across the EU. They should also help investors and other market participants by providing clarity on EMIR's requirements. On 11 June 2013 ESMA published guidelines and recommendations for establishing consistent, efficient and effective assessments of interoperability arrangements.

(e) On 13 June 2013 the European Commission extended the deadlines for ESMA to deliver certain technical advice on third-country equivalence under EMIR. ESMA’s advice on the US and Japanese regimes is now due on 1 September 2013 and its advice on other third-countries is due on 1 October 2013.

(f) On 14 June 2013 ESMA updated its webpage on EMIR to indicate that it estimates that the first trade repositories are not likely to be registered before August 2013.
The Central Bank has indicated that it expects to be appointed competent authority in respect of EMIR during the third quarter of this year, following the end of Ireland's presidency of the EU.

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1.3 European Commission – Draft Proposal for Money Market Funds 

A draft Proposal for a Regulation on Money Market Funds (the "Draft Regulation") has been unofficially released by the European Commission. The formal release is expected on 24 July 2013. The Draft Regulation is very prescriptive and contains detailed proposals governing the assets eligible for money market funds ("MMFs"), diversification requirements, risk management rules, valuation rules and strict external support restrictions. The Draft Regulation also contains a proposal that will require constant NAV ("CNAV") MMFs to establish and maintain a capital buffer of at least 3% of the total value of a MMF's assets.

The Draft Regulation expands upon the ESMA "Guidelines on a common definition of European money market funds" issued on 19 May 2010 and builds upon the existing regulatory framework established through Directive 2009/65/EC (the "UCITS Directive") and AIFMD.

The proposed regulation of MMFs will therefore rely on the existing authorisation and/or registration procedures for funds subject to the UCITS Directive or AIFMD but funds falling under the scope of the Draft Regulation will have to comply with the additional layer of specific MMF rules contained therein.

The Draft Regulation will apply to MMFs "established, managed and/or marketed in" the EU.

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1.4  UCITS V

On 13 May 2013 the European Parliament's Economic and Monetary Affairs Committee ("ECON") published a report (dated 29 April 2013) on UCITS V that it voted to adopt on 21 March 2013. The report contains a draft legislative resolution for the European Parliament with proposed amendments to the UCITS V legislative proposals. This included a controversial cap on bonuses.

However on 3 July 2013 the European Parliament voted on the text of the draft UCITS V Directive and the proposal to cap fund manager bonuses to 100% of fixed salary was rejected. The agreed compromise proposal provides that bonuses should correspond to fund performance so as to reflect reduced bonus levels when the fund has "subdued or negative financial performance". A provision has also been introduced giving power to EU Member State competent authorities to scrutinise bonus levels of UCITS management companies to ensure consistency with the principles of sound and effective risk management and appropriate levels of risk taking.

For further details please see our client update, Draft UCITS V Directive: Proposed bonus cap for fund managers rejected by the European Parliament.

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1.5 AML: Criminal Justice Act 2013

The Criminal Justice Act 2013 (previously called the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2013) ("CJA 2013") was enacted on 12 June 2013 but only Part 2 (other than sections 5, 15 and 16) are in force so far. It amends certain provisions of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 ("CJA 2010") in order to align certain provisions more closely with international standards and to amend some provisions to reflect operational requirements.

The majority of amendments expand and clarify on the definitions in the CJA 2010. The main impact is that simplified customer due diligence should only apply where steps have been taken by the designated person to satisfy itself the customer is a specified customer (or product). Importantly, due to the speedy enactment of the CJA 2013, the Financial Action Task Force (on Money Laundering) ("FATF") have announced that they have removed Ireland from the regular follow-up process due to this positive action taken to strengthen Ireland's anti-money laundering and counter terrorist financing measures. For full details of all the amendments made by the CJA 2013, please contact a member of our Financial Services Regulatory Enforcement Group.

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1.6 European Long-Term Investment Funds: European Commission Proposal

On 26 June 2013 the European Commission proposed a new investment fund framework designed for investors who want to put money into companies and projects for the long term. The proposal was presented to the Heads of State and Government at the recent European Council where long-term financing of the real economy was on the agenda.

These private European Long-Term Investment Funds ("ELTIFs") are designed to meet the needs of institutional and private investors who are prepared to see their money tied into long-term assets, such as infrastructure projects, in return for a steady income.

The new funds would be available to all types of investor across Europe subject to certain EU law requirements. These requirements include the types of long-term assets and firms that the ELTIFs are allowed to invest in, for example, transport and sustainable energy projects, how they have to spread their money to reduce risks and the information they have to give to investors.

ELTIFs would invest in illiquid assets which are difficult to buy and sell. Investors will not be able  to withdraw money until the specified end date of their investment. This could be ten years or  more after the money is invested and must be disclosed clearly upfront. In exchange for their commitment, investors would benefit from the regular income stream produced by the investment asset and possibly collect an illiquidity premium.

Under the proposal, ELTIFs would have to meet a set of common rules so that they:

(i) always have a depositary to keep assets safe;

(ii) comply with rules on spreading assets to prevent too much money going into one asset;

(iii) only use derivatives to manage currency risks in relation to the assets they hold, and not for speculation; and

(iv) obey limits on the amount they can borrow.

Any ELTIF manager would also have to comply with all of the requirements of AIFMD to provide adequate protection for its investors. Pension funds and insurance companies are expected to be particularly interested in ELTIFs along with private investors who can afford to see some of their savings committed for a long period of time.

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2 Regulatory

2.1 Update to Fitness and Probity Section of Central Bank Website

The following changes have been made to the Fitness and Probity section of the Central Bank's website:

(a) The manual on how to complete an Individual Questionnaire has been updated and simplified.

(b) Improved "how to" video tutorials are now available.

(c) The Individual Questionnaire template has been updated.

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2.2 Update to Central Bank UCITS and NU Notices and UCITS Application Forms

(a) Index tracking funds – disclosure requirements. The UCITS Application Forms were updated in February 2013 to reflect the revised UCITS Notices which issued at that time. Section 2.2.3 (e) (and the corresponding section in Section 10) requires certain disclosure in relation to index-tracking funds. The forms have been amended further to clarify that such disclosure applies to UCITS which are tracking or replicating the performance of an index.

(b) Transactions with connected parties. Industry has been engaging with the Central Bank with regard to the requirement to include a list of transactions with connected parties in annual and half yearly reports. The Central Bank has published revised UCITS and NU Notices where the requirement to include a list of all transactions with connected parties has been deleted and replaced with a requirement that the board of directors of the management company or self-managed investment company confirm compliance with regulatory requirements.

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2.3 Implementation of ESMA’s Guidelines on ETFs and UCITS Issues

On 17 December 2012 ESMA published guidelines on exchange traded funds ("ETFs") and UCITS which are effective since 18 February 2013. In February 2013 the Central Bank updated the UCITS Notices to reflect these guidelines.

For further details please see our client update, Update to the Central Bank's UCITS Notices and Guidance Notes and our Initial Impact Assessment for Irish UCITS on the ESMA Guidelines on ETFs and other UCITS issues.

The Irish Financial Industry Association ("IFIA") Industry Technical Committee has recently prepared a paper to provide guidance on the application of the amended UCITS Notices as they pertain to the annual and half-yearly reports for Irish authorised UCITS.

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2.4 Amendment to Guidelines for Fund Administrators

The IFIA Industry Technical Committee March 2013 paper on some practical guidelines for fund administrators with regard to the Central Bank's new regulatory reporting process which is being rolled out over the coming months was amended slightly in paragraph 2.3 in April 2013.

The Central Bank have responded providing clarification and updated the FAQ accordingly.

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2.5 Further Consultation on Inquiry Guidelines  

Under Part IIIC of the Central Bank Act 1942 (as amended) the Central Bank has the power to impose sanctions in respect of breaches of regulatory requirements by regulated financial service providers and persons concerned in their management and to publicise the findings and sanctions imposed. This is known as the "Administrative Sanctions Procedure".

The Central Bank has issued a further public consultation, Consultation Paper No. 65, on draft inquiry guidelines (the "Inquiry Guidelines") to be prescribed pursuant to section 33BD of the Central Bank Act 1942. This follows the Central Bank’s consideration of the responses to Consultation Paper No. 57 and feedback statement. The aim of the draft Inquiry Guidelines is to provide a framework for the Central Bank to conduct, in appropriate cases, an inquiry as part of the Administrative Sanctions Procedure.

The draft Inquiry Guidelines provide significant detail in terms of the practice and procedure to be adopted during an inquiry. It is intended that, once finalised, the Inquiry Guidelines will replace the existing "Administrative Sanctions Guidelines" published by the Central Bank in 2005.

Interested parties were asked to comment on the draft Inquiry Guidelines by 24 June 2013. Maples and Calder's Financial Services Regulatory Enforcement Group responded to this consultation paper, details of which can be provided to clients on request.

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2.6 Non-Resident Declaration and Equivalent Measures Information Note

A subgroup of the IFIA Transfer Agency Committee in liaison with the IFIA Tax Committee has produced a detailed information note on the Non-Resident Declaration Regime and the Equivalent Measures Regime. The Equivalent Measures Regime was introduced in the Finance Act 2010 following engagement between the Revenue Commissioners and industry to provide for increased efficiency of reporting in recognition that the vast majority of Irish domiciled funds are only distributed to non-Irish residents.

The note provides detailed information about the operation of the Equivalent Measures Regime, including its retrospective application, some frequently asked questions and information about the increased efficiency of the regime for funds, investors and administrators.

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2.7 Central Bank Issues Letter of Recommendation Following Thematic Review of Administration Firms Outsourcing Administration Activities in Relation to Collective Investment Schemes

The Central Bank issued a letter on 10 May 2013 following its thematic review of administration firms' compliance with the requirements on outsourcing of administration activities in relation to collective investment schemes. At the end of 2012, the Central Bank undertook a series of themed reviews of administration firms to review the controls and procedures around outsourcing arrangements and to assess each firm's compliance with the outsourcing requirements set out in Annex II of the UCITS and non-UCITS Notices (the "Outsourcing Requirements").

The Outsourcing Requirements ensure that administration firms maintain a consistent standard of oversight over outsourcing service providers and also retain ultimate responsibility for the outsourced activities. The Outsourcing Requirements aim to mitigate key risks including risk that investors subscribe or redeem at an incorrect Net Asset Value ("NAV"), risk of services being interrupted due to an unexpected contingency event and risk of inadequate control and oversight mechanisms.

The objective of the thematic review process was to assess the approach to outsourcing and its inherent risks, compliance with specific Outsourcing Requirements and to evaluate best practice in the industry.

From the thematic reviews, the Central Bank found that while firms have generally adopted the Outsourcing Requirements, there are areas requiring enhancement where controls were insufficient or inconsistently applied. The Central Bank also identified clear incidents of non-compliance with the Outsourcing Requirements.

As a result, the Central Bank has issued a number of recommendations which will assist firms in assessing their compliance with the Outsourcing Requirements. These recommendations are outlined in the schedule to the letter. The Central Bank has requested that administration firms review existing outsourcing arrangements and make any necessary changes/enhancements to ensure compliance with the Outsourcing Requirements. In line with similar letters issued to industry, the Central Bank expects firms to carry out the necessary gap analysis and remedy any deficiencies. The review of outsourcing arrangements should be ratified by the Board of Directors.

The ultimate responsibility for compliance with all regulatory obligations rests with the Board of each firm. The Central Bank, having issued the recommendations, will in the future seek to deploy the full range of its supervisory tools, including taking enforcement where necessary, where it perceives that firms pose a risk outside the Central Bank's risk appetite and where there is continuing non-compliance.

We expect the Central Bank to issue another letter to industry over the course of quarter three following completion of its review of management companies' compliance with post authorisation business plans in relation to the respective Notices.

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2.8 ESMA Clarifies Pay Rules Applicable to Investment Firms

ESMA has published guidelines on remuneration policies and practices which apply to relevant staff of investment firms, credit institutions and fund management companies when providing investment services, and to national securities regulators enforcing those rules.

These guidelines will have a big impact on affected firms and it would be beneficial to carry out a thorough review against internal processes, documenting compliance with the requirements.

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2.9 Principles for the Valuation of Collective Investment Schemes

In May 2013 the International Organization of Securities Commissions ("IOSCO") published a final report on Principles for the Valuation of Collective Investment Schemes, containing a list of principles intended to serve as a basis for both industry practitioners and regulators to assess the quality of regulation and industry practices regarding the valuation of collective investment schemes.

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2.10 IOSCO Publishes Principles for the Regulation of ETFs

The Board of IOSCO published the final report on Principles for the Regulation of Exchange Traded Funds, containing nine important principles intended to guide the regulation of ETFs and foster industry best practices in relation to these products.

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2.11 Updates to CFTC Registration and Reporting Requirements

In February 2012 the Commodity Futures Trading Commission ("CFTC") rescinded certain exemptions from registration and amended compliance and reporting requirements. The IFIA Industry Technical Committee have recently prepared a paper to assist industry understand these changes.

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2.12 IFIA AML/CTF Sectoral Guidelines for Investment Funds

In May 2013, the IFIA submitted v34 of the Investment Funds AML/CTF Sectoral Guidelines to the Central Bank. At the time of writing, it was expected the Central Bank would agree to the majority of revisions within the Sectoral Guidelines. The points and some of the scenarios regarding nominee shareholder also looks likely to be agreed upon.

For full details on the proposals, please contact your usual Maples and Calder representative or a member of the Financial Services Regulatory Enforcement team.

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2.13 Market Abuse Update

On 26 June 2013, the Council of the EU announced that its Permanent Committee of Representatives ("COREPER") has approved a compromise agreed by the Presidency of the Council with the European Parliament on the proposed Market Abuse Regulation ("MAR"). The agreement remains subject to a technical alignment following the outcome of trialogues on MiFID (Markets in Financial Instruments Directive (2004/39/EC)) relating to the cross references in MAR to MiFID II legislation.

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2.14 Packaged Retail Investment Products

On 26 June 2013 the COREPER agreed its position on the draft regulation aimed at improving market transparency for retail investors. The Packaged Retail Investment Products ("PRIPs") proposal is aimed at ensuring retail investors always receive the information they need in order to take informed decisions. The draft regulation requires that key information documents are drawn up for PRIPs setting out rules on the format and content of such documents and how they are provided to retail investors. Requirements would be applicable two years after entry into force of the regulation, allowing manufacturers of PRIPs sufficient time to prepare for the new rules. UCITS would become subject to the regulation after five years given they are already subject to the key information requirements under Directive 2009/65/EC.

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2.15 Capital Requirements Directive

During the second quarter of 2013, the European Banking Authority ("EBA") published a number of consultation papers on the Capital Requirements Directive ("CRD"). Of importance for MiFID investment firms, is consultation paper (EBA/CP/2013/11) (21 May, 2013) which sets out draft regulatory technical standards on criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile under Article 90(2) of the proposed CRD.

On 27 June, the legal texts of the Capital Requirements Regulation and Directive ("CRD IV") were published in the Official Journal of the European Union. It is expected the legislation will come into effect on 1 January 2014.

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2.16 MiFID II/MiFIR 

The Irish Presidency has been busy during the second quarter of 2013 with regard to MiFID II and proposed Markets in Financial Instruments Regulation ("MiFIR"). and published and tabled a number of iterations of compromise texts. Some of the amendments included the new provisions for consolidated tape providers; new provisions regarding the use of waivers under Article 4; deletion of provisions relating to the permitted volume of trading under the waiver in Article 4 and replacement by a minimum threshold requirement; amongst a number of new defined terms including exchange traded derivatives and the notion of liquidity fragmentation. Remuneration provisions have also been published with regard to MiFID investment firms. These provisions are quite onerous and recent EBA consultation papers on the types of staff whose professional activities have an impact on the institution's risk profile should also be considered.

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2.17  Matthew Elderfield Resignation

Following last quarter's announcement of the resignation of Peter Oakes as the Director of Enforcement, this quarter the Central Bank announced that Matthew Elderfield will step down as Deputy Governor following a six month notice period.

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2.18 ESMA's Work Programme for 2013

ESMA published their regulatory work programme on 5 April 2013 a few months late due to uncertainties in the EU's legislative programme. It highlights the extent of the work ESMA is expecting to cover this year, most of which will be through industry consultation processes including the following: MiFID; MiFIR; the Short Selling Regulation; MAR; the Central Securities Depositories Regulation; EMIR; the Transparency Directive; the TakeOver Bids Directive; the Prospectus Directive; the Omnibus I & II Directive; AIFMD; UCITS IV & V; the Venture Capital Regulation; the Social Entrepreneurship Funds Regulation and the Credit Rating Agency 3 Regulation.

If you wish to engage with ESMA at the consultative stages on any of the above regulatory changes please contact your usual Maples and Calder representative or a member of the Financial Services Regulatory Enforcement team.

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3 Tax

3.1 FATCA Consultation

The US Foreign Account Tax Compliance Act ("FATCA") requires foreign financial institutions ("FFIs") to report information on accounts held by US persons (individuals and entities) and US controlled foreign entities. An Irish Inter Governmental Agreement ("IGA") was signed with the US on 21 December 2012. The IGA provides for the automatic reporting and exchange of information in relation to accounts held in Irish financial institutions by US persons and the reciprocal exchange of information regarding US accounts held by Irish citizens. The benefits of the IGA are that reporting FFIs will not be required to sign an agreement with the Inland Revenue Service ("IRS") but will report directly to the Irish Revenue Commissioners. Reporting FFIs are also considered to be FATCA compliant and as a result will not suffer the 30% withholding tax on US source income or gross proceeds.
The provisions of the IGA were given effect in the Finance Act 2013. The Act also included certain provisions relating to fines for non-filing of returns by FFIs and empowered the Revenue Commissioners to enact regulations to implement the IGA.

On 3 May 2013 the Revenue Commissioners issued draft Financial Accounts Reporting Regulations 2013 (the "Regulations") and supporting draft Guidance Notes on the Implementation of FATCA in Ireland for consultation. The consultation process closed on 31 May 2013 and a number of submissions by industry groups (which included Maples) were made during this time.

Irish FFIs (including registered deemed compliant FFIs) are still required to register on the IRS' FATCA registration portal and will receive a Global Intermediary Identification Number ("GIIN") once the registration is approved. The US IRS has indicated that this portal will be accessible from 15 July 2013. A FFI must register before 25 October 2013 to be included in the first IRS list of registered FFIs issued on 2 December 2013.

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3.2 REIT Update

With recent international focus on the Irish commercial property market, the Finance Act 2013 introduced legislation providing for a new form of property investment company in Ireland, the Irish Real Estate Investment Trust ("REIT"). The Irish REIT has been based on the model used successfully in other jurisdictions.

A REIT is a publicly listed Irish resident and incorporated company which, provided certain conditions are met, will not be taxed on its rental property income or gains. The main operating conditions that must be satisfied are:

(a) at least 75% of its income must derive from carrying on a property rental business;

(b) it must maintain a property financing cost ratio of at least 1.25:1 (rental income to financing costs);

(c) it must maintain a loan to value ratio of not more than 50%; and

(d) it must distribute at least 85% of the property income for each accounting period by way of a dividend.

Taxation of a REIT

Provided the conditions are satisfied, the REIT will not be subject to Irish corporation tax in respect of either the income or the capital gains attributable to its property rental business.

Any income or gains arising from any residual business (i.e. non-property rental business) are subject to tax in the usual way. To be a qualifying REIT, the maximum income that can be earned from the residual business is 25% of the aggregate income in any accounting period.

REIT shareholders

Irish individual resident shareholders will be liable to income tax, USC and PRSI on income distributions by the REIT. Irish resident corporate shareholders will be liable to corporation tax at a rate of 25% on such distributions. Irish resident shareholders (corporate and individual) will be liable to capital gains tax at 33% on any gains arising on the disposal of shares in the REIT.
Non-Irish resident shareholders will not be liable to Irish capital gains tax on the disposal of shares in the REIT. Non-resident shareholders may be liable to tax in their own jurisdictions on both the receipt of dividends from the REIT and/or any gain arising on the sale of shares in the REIT. 

The REIT will apply dividend withholding tax ("DWT") of 20% on the payment of dividends to its shareholders. Certain specified entities (e.g. Irish pension funds or insurance companies) may be entitled to an exemption from DWT. Certain non-resident shareholders may also be exempt depending on the jurisdiction in which they are resident and the provisions of the relevant double tax agreement ("DTA"). Ireland has a broad DTA network with rates of withholding tax ranging from 0% to 15%.

Alternative structures

For many international investors, Central Bank regulated qualifying investor funds ("QIFs") are popular property investment vehicles. QIFs are regulated funds which are typically constituted as unit trusts or companies.

One major tax difference between a QIF and a REIT is the absence of withholding tax in respect of payments by a QIF to non-Irish investors. In our view, QIFs are likely to remain the preferred choice for overseas institutional investors for this reason.

Institutional investors have also invested into Irish property utilising a tax efficient non-regulated Irish "section 110" company, and this should also be considered at the structuring stage.

A QIF would not be suitable to the extent an arranger wished to establish an offering to retail investors due to the eligibility criteria to invest in a QIF and the minimum subscription required. In our view an Irish regulated non-UCITS retail fund (a Retail Investor Alternative Investment Fund ("RIAIF") from 22 July 2013) may be the suitable investment vehicle in that case, and should be considered before deciding to establish a REIT.

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3.3 PAYE on Director's Fees

As most industry participants will be aware, this is a very topical issue with high levels of scrutiny by Irish Revenue Commissioners and communication with the IFIA. The key question is whether Irish investment funds are liable to account for Irish payroll taxes ("PAYE") in respect of payments made to directors directly or through corporate service providers. Revenue is pursuing settlements in this area and any funds which have concerns in relation to their historic PAYE position should liaise with their advisers in order to determine whether a voluntary disclosure may be necessary. Maples are actively involved in addressing these issues with clients and industry groups.

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4 Listing

4.1 Irish Stock Exchange Consultation on Listing Rules for REITs

The Finance Bill 2013 introduced a tax regime for REITs. One of the conditions to qualify for the REIT tax regime is that the REIT must have its shares listed on the main market of a recognised stock exchange in an EU Member State. In light of the above development, the Irish Stock Exchange ("ISE") has created a listing regime for REITs. In particular, they have developed a new Chapter 16 in our Listing Rules specifically for REITs which will apply to a property investment company that qualifies as a REIT under the Finance Act 2013. They have aligned our new requirements with those of the FCA Listing Rules in the UK so as to facilitate REITs that may seek a dual listing in Ireland and the UK.

The ISE ran a short consultation on the proposed listing rules in Chapter 16 until 26 April 2013 and will publish the new chapter in early July.

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4.2 Consultation on Updated Investment Funds Code of Listing Requirements and Procedures for Investment Funds

The ISE has undertaken a comprehensive review of the Investment Funds Code of Listing Requirements and Procedures for Investment Funds (the "Code"). A draft of the Code was sent to the listing sponsors for review on 28 February 2013 and comments returned by 2 April 2013. The new and improved Code will be effective on 22 July 2013 to coincide with the implementation of AIFMD.

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© Maples and Calder 2013

This update is intended to provide only general information for the clients and professional contacts of Maples and Calder. It does not purport to be comprehensive or to render legal advice.



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