The combination of index investing, discount brokers and dollar cost averaging mean any individual, with as little as €1, can create a diversified portfolio composed of the worlds largest companies. The current Irish tax system is geared towards the following:
- Investing in large lump sums which leads to the wealthier in society being more able to invest and grow their wealth. It is inherently elitist in nature.
- Investing in individual stocks which is much more risky than investing in diversified funds.
We believe that the current form of deemed disposal is flawed and can be changed in a manner that would suit both Irish Savers and Revenue. We are not aware of any other country that has copied deemed disposal since its introduction. However, it is understandable that Revenue would not be inclined to allow money to grow for decades without being able to get a cut. For this reason, Accumulating ETF funds are not sold in the United States.
We believe that deemed disposal should be removed for all Open Ended Distributing Funds. This would cover ETFs, Index Funds and OEICs (Open Ended Investment Companies). It can be maintained for Accumulating Funds such as Accumulating ETF funds. This change would ensure that both Revenue and Irish Savers benefit. Revenue would get to tax the dividend payout each year. Investors would have an easier tax regime to follow.
As a result of the changes above, Open Ended Distributing Funds would not meet the criteria deemed necessary to be subject to Exit Tax. Exit Tax is applied to take into account the gross roll up and compounding effect of automatically reinvesting the dividends. The dividends for these funds would be subject to tax, and as such, this would not apply to them.
As such, Open Ended Distributing Funds would be subject to CGT. They would be treated in the same way as any other asset that, when disposed of, is subject to CGT: https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/index.aspx
Comparison of accumulating ETFs and distributing ETFs: https://www.bogleheads.org/wiki/Comparison_of_accumulating_ETFs_and_distributing_ETFs