The Irish government has published a final draft Irish Collective Asset-management Vehicle or ICAV Bill which, once enacted, will allow for the incorporation of a new, tax-efficient and innovative corporate structure for Irish investment funds. Stephen Carty, the investment funds partner at Maples and Calder's Dublin office, examines the legislation in its more-or-less final form.

The Bill is expected to go onto the statute book later in the year and the Central Bank of Ireland has promised to authorise the first ICAVs shortly thereafter. Initial feedback estimates that hundreds of ICAVs will be formed at an early stage, representing billions of euros. As a result, it will immediately become one of the most popular legal forms of Irish fund.

What is an ICAV?

The ICAV will sit alongside the existing public limited company (Irish plc) structure, which has been the most successful and popular of the existing Irish fund structures to date. It will also complement other available legal forms of Irish regulated funds which include the unit trust, limited partnership and the common contractual fund (CCF) and can be used in conjunction with these funds as master-feeders or parallel fund structures. Like other regulated fund structures, the ICAV will be established by way of a filing with the CBI and can seek authorisation as either an Undertaking for Collective Investment in Transferable Securities (UCITS) or an alternative investment fund (AIF) structure.

Who can use it?

The ICAV will be available to both new and existing structures, as an Irish plc will be able to convert to an ICAV. Eligible offshore funds also have the option to migrate to Ireland and be established as an ICAV by way of continuation.

Advantages of the ICAV

The principal advantage to an investment fund established as an ICAV is that it will have its own specific legislative code and will not be affected by amendments to certain pieces of European and Irish company legislation that are targeted at ordinary companies rather than investment funds, but which currently affect Irish plcs. This should result in a more straightforward set of legal rules than otherwise, with resulting lower administration costs.

In addition, the Irish plc is currently considered to be a “per se corporation” for US tax purposes. As a result, a “check-the-box” election for US tax purposes is not available in respect of an Irish plc and, accordingly, it is generally treated as a separate entity for US tax purposes. A key advantage of the ICAV is that it will not automatically be considered a corporation for US tax purposes. Instead, it will be possible to make an election under US “check-the-box” tax rules in respect of the ICAV, in order for it to be classified as a partnership or disregarded entity. This will make it attractive to US investors and managers who, to date, have traditionally established Irish funds as unit trusts in order to achieve this result.

Notable features

An ICAV may be established as either a single fund or as an umbrella structure with a number of sub-funds and share classes. The Bill specifically provides for robust segregation of liability between sub-funds in umbrella structures.

The Bill allows for the preparation of separate sub-fund accounts for an ICAV. This will be a very important feature for managed accounts and large multi-manager structures as currently Irish plcs have to produce one set of accounts for the entire umbrella which mandates a single year-end date and the ability of investors in one sub-fund to receive financial details for investors in others.

The ICAV is not subject to the principle of risk spreading (unlike the Irish plc which must spread investment risk) which will facilitate single asset deals, e.g. single property holdings or exposure to a single issuer.

In the case of changes to the ICAV’s instrument of incorporation (“IOI”) there will be no requirement to obtain prior investor approval where the depositary certifies that changes to the IOI do not prejudice the interests of investors (similar to the requirements relating to changes to the trust deed of a unit trust).

To reduce the administrative burden on funds, directors of an open-ended ICAV are permitted to elect to dispense with the holding of an annual general meeting (“AGM”) by giving written notice to all of the ICAV’s shareholders. There is a safeguard in that shareholders holding 10% or greater of shares can demand an AGM.

Below is a comparison table of the key features of ICAVs and PLCs.

Key Features                             ICAV                 Irish plc

Availability as UCITS                  Yes                     Yes

Availability as AIFs

(AIFMD compliant)                     Yes                     Yes

Availability as a segregated

umbrella                                     Yes                     Yes

Ability to “check-the-box”

for US tax purposes                   Yes                      No

Outside of scope of Irish

Companies Act                           Yes                      No

Risk spreading requirement       No                       Yes

Shareholder approval

required for every change

to constitutional document         No                      Yes

Ability to dispense with the

requirement to hold AGM          Yes                     No

Ability to prepare separate

accounts at sub-fund level        Yes                     No

Required to have the aim of

spreading investment risk         No                      Yes

Ability to issue equity and

debt to investors                       Yes                     Restricted

Conversion of Irish plc to ICAV

The Bill allows an Irish plc to convert itself into an ICAV by way of continuation. In order to do so a filing will be required to be made with the CBI including the Irish plc’s current and intended constitutional documents together with a statutory declaration of a director confirming, among other matters, the solvency of the Irish plc and consenting to the proposed conversion.

Redomiciliations

The Bill also allows for the registration of an eligible migrating company with the CBI as an ICAV by way of continuation (i.e. keeping its performance track record).

Irish tax and the ICAV

The ICAV will constitute an investment undertaking for Irish tax purposes and will be subject to the same gross roll-up regime that currently applies to existing Irish investment funds, AIFs and UCITS. Broadly speaking, this means that any profits and gains of the ICAV will be exempt from tax in Ireland subject to certain conditions. It should be noted that Irish authorised funds established as CCFs and limited partnerships are, in fact, subject to a different Irish tax regime, in that they are regarded as “tax transparent” and are not taxable at the fund level, but rather, the income and gains of the fund are attributable to the investors.

There may be further changes required to the Irish tax legislation (including the Irish Taxes Consolidation Act 1997, as amended, and the Stamp Duties Consolidation Act 1999) to deal with certain ancillary items, ensuring for instance that the conversions, mergers and re-domiciliations referred to in the Bill can occur in a tax-neutral manner. These changes should be included in the Finance Bill later in the year.

* The Dublin office of Maples and Calder can be reached on +353 1 619 2000. The head of the Investment Funds Team is Stephen Carty.