The-ICAV---a-struct
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The ICAV - a structure to fit the funds industry Back The introduction of the ICAV will further enhance Ireland’s competitive advantage as an asset management domicile of choice, writes Brian Hughes who is a director in audit at BDO. He says the ability for the new structure to cut red tape, especially for US investors thanks its compatibility with US 'check-the-box' taxation rules, should make it very attractive option for fund managers. 'Ireland will finally have its own corporate structure specifically designed for investment funds,' he says. The publication over the summer of the Irish Collective Asset-management Vehicle (ICAV) Bill introduces a new opportunity for the already burgeoning Irish funds industry. With the wider economy beginning to show sustainable levels of growth, the push for inward investment of all kinds continues unabated. In this vein, a vehicle which can attract US investors into Irish investment vehicles can only be welcomed. It is important to contextualize the ICAV within the current Irish regulatory framework before we look at some of the benefits that this new Irish fund vehicle brings. It is proposed that the ICAV will co-exist as a legal structure alongside the current fund structures that are commonly available in Ireland (investment companies by way of PLC, unit trusts, investment limited partnerships and common contractual funds). As an entity that will be governed by a board of directors and ultimately owned by shareholders, the ICAV may be formed as an open-ended, closed-ended or limited liquidity fund. ICAVs can be established as either UCITS or AIFs. They will not be required to make Companies Office filings. It is to be welcomed, given the Central Bank’s deserved reputation for openness and transparency with regard to regulatory issues, fund authorisation and subsequent reporting requirements, that they will be the supervisory authority. Of the many advantages that the ICAV structure will offer, perhaps the timeliest and which should prove appealing to US investors will be the ability of the ICAV to elect for classification under the US ‘check-the-box’ taxation rules as a ‘flow-through’ for US tax purposes. Currently any Irish authorised fund that is constituted as an investment company is deemed to be a corporation for US tax purposes. This can greatly increase the tax compliance requirements of the vehicle. Another key benefit of the ICAV structure is the establishment of a specific legislative regime to ensure the ICAV is distinguished from more traditional company structures and therefore not subject to those aspects of companies’ legislation that are either not relevant or not appropriate to a collective investment scheme. This will trim legal and administrative costs and protect the ICAV from being adversely or inadvertently impacted by potential future changes to Irish or EU company law. Further, there will be no requirement for the ICAV to hold an Annual General Meeting once written notice is given to all shareholders. Financial reporting The ICAV may be established as an umbrella structure with a number of sub-funds and share classes. The proposed legislation provides for segregated liability between sub-funds and the ICAV can prepare separate financial statements for each sub-fund. Previously this option was only available to Irish unit trusts, with Irish PLCs being required to prepare consolidated financial statements to include all sub-funds. The ability to produce individual financial statements for individual sub-funds will facilitate the provision of more relevant information to the ICAV’s investors. The expected suite of accounting standards will be allowable under the ICAV structure, including Irish GAAP/FRS102, IFRS and US GAAP. The ICAV will not be subject to risk diversification requirements, thereby making it an appealing choice for alternative investment fund managers. Perhaps one of the most interesting aspects is the ability to convert to the new vehicle from the more established structures currently in place. Existing Irish funds will be able to apply to the Central Bank to convert to the ICAV. Once the converted ICAV is registered, it will not be considered a new entity but will continue as previously established insofar as any contracts entered into in relation to the new ICAV, prior to its conversion, will not be affected and past performance will be preserved. Redomiciliation to the ICAV structure for non-Irish funds availing of the streamlined redomiciliation process is also facilitated. The general uptake in the wider funds sphere of the redomiciliation process has proved rather slower than initially anticipated. Perhaps this is the vehicle that will pique the interest of both investors and investment managers to make the jump from other jurisdictions? At a minimum, the tax advantages are likely to appeal to foreign investors and investment mangers keen to stay compliant with US tax requirements. Competitive advantage The introduction of the ICAV will further enhance Ireland’s competitive advantage as an asset management domicile of choice. The innate flexibility of this vehicle will provide investors and investment managers alike with a bespoke structure within which to operate. Ireland will finally have its own corporate structure specifically designed for investment funds. The interest already displayed by fund providers, either seeking to set up new funds under the ICAV structure or convert existing structures, indicates that the ICAV will be a popular option going forward. Of course, input from various interested parties at the Bill stage has the potential to influence and refine the final shape of the eventual Act, but at this point the structure of the Bill has to be broadly welcomed. Brian Hughes is director, audit at BDO. This article appeared in the December 2014 issue of Finance Dublin. ©2014FintelLtd Privacy AboutUs Search Contact Us Advertise SiteMap Home Library Yearbook Events FinanceJobs.ie SpecialPublications ContactUsAbout: MyDetails Page 1 of 1 FinanceDublin.com - Home 09/12/2014 http://www.financedublin.com/articles/14633/The-ICAV---a-structure-to-fit-the-funds...
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The ICAV - a structure to fit the funds industry Back
The introduction of the ICAV will further enhance Ireland’s competitive advantage as an asset management domicile of choice, writes Brian
Hughes who is a director in audit at BDO. He says the ability for the new structure to cut red tape, especially for US investors thanks its
compatibility with US 'check-the-box' taxation rules, should make it very attractive option for fund managers. 'Ireland will finally have its own
corporate structure specifically designed for investment funds,' he says.
The publication over the summer of the Irish Collective Asset-management Vehicle (ICAV) Bill introduces a new opportunity for the already burgeoning Irish
funds industry. With the wider economy beginning to show sustainable levels of growth, the push for inward investment of all kinds continues unabated. In this
vein, a vehicle which can attract US investors into Irish investment vehicles can only be welcomed. It is important to contextualize the ICAV within the current
Irish regulatory framework before we look at some of the benefits that this new Irish fund vehicle brings.
It is proposed that the ICAV will co-exist as a legal structure alongside the current fund structures that are commonly available in Ireland (investment
companies by way of PLC, unit trusts, investment limited partnerships and common contractual funds). As an entity that will be governed by a board of
directors and ultimately owned by shareholders, the ICAV may be formed as an open-ended, closed-ended or limited liquidity fund. ICAVs can be established
as either UCITS or AIFs.
They will not be required to make Companies Office filings. It is to be welcomed, given the Central Bank’s deserved reputation for openness and transparency
with regard to regulatory issues, fund authorisation and subsequent reporting requirements, that they will be the supervisory authority.
Of the many advantages that the ICAV structure will offer, perhaps the timeliest and which should prove appealing to US investors will be the ability of the
ICAV to elect for classification under the US ‘check-the-box’ taxation rules as a ‘flow-through’ for US tax purposes. Currently any Irish authorised fund that is
constituted as an investment company is deemed to be a corporation for US tax purposes. This can greatly increase the tax compliance requirements of the
vehicle.
Another key benefit of the ICAV structure is the establishment of a specific legislative regime to ensure the ICAV is distinguished from more traditional
company structures and therefore not subject to those aspects of companies’ legislation that are either not relevant or not appropriate to a collective investment
scheme.
This will trim legal and administrative costs and protect the ICAV from being adversely or inadvertently impacted by potential future changes to Irish or EU
company law. Further, there will be no requirement for the ICAV to hold an Annual General Meeting once written notice is given to all shareholders.
Financial reporting
The ICAV may be established as an umbrella structure with a number of sub-funds and share classes. The proposed legislation provides for segregated liability
between sub-funds and the ICAV can prepare separate financial statements for each sub-fund. Previously this option was only available to Irish unit trusts, with
Irish PLCs being required to prepare consolidated financial statements to include all sub-funds. The ability to produce individual financial statements for
individual sub-funds will facilitate the provision of more relevant information to the ICAV’s investors.
The expected suite of accounting standards will be allowable under the ICAV structure, including Irish GAAP/FRS102, IFRS and US GAAP. The ICAV will
not be subject to risk diversification requirements, thereby making it an appealing choice for alternative investment fund managers.
Perhaps one of the most interesting aspects is the ability to convert to the new vehicle from the more established structures currently in place. Existing Irish
funds will be able to apply to the Central Bank to convert to the ICAV. Once the converted ICAV is registered, it will not be considered a new entity but will
continue as previously established insofar as any contracts entered into in relation to the new ICAV, prior to its conversion, will not be affected and past
performance will be preserved.
Redomiciliation to the ICAV structure for non-Irish funds availing of the streamlined redomiciliation process is also facilitated. The general uptake in the wider
funds sphere of the redomiciliation process has proved rather slower than initially anticipated.
Perhaps this is the vehicle that will pique the interest of both investors and investment managers to make the jump from other jurisdictions? At a minimum, the
tax advantages are likely to appeal to foreign investors and investment mangers keen to stay compliant with US tax requirements.
Competitive advantage
The introduction of the ICAV will further enhance Ireland’s competitive advantage as an asset management domicile of choice. The innate flexibility of this
vehicle will provide investors and investment managers alike with a bespoke structure within which to operate.
Ireland will finally have its own corporate structure specifically designed for investment funds. The interest already displayed by fund providers, either seeking
to set up new funds under the ICAV structure or convert existing structures, indicates that the ICAV will be a popular option going forward. Of course, input
from various interested parties at the Bill stage has the potential to influence and refine the final shape of the eventual Act, but at this point the structure of the
Bill has to be broadly welcomed.
Brian Hughes is director, audit at BDO.
This article appeared in the December 2014 issue of Finance Dublin.
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09/12/2014http://www.financedublin.com/articles/14633/The-ICAV---a-structure-to-fit-the-funds...
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