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New Irish fund structure officially launched

Managers have begun making the switch to the ICAV, which allows for US tax treatment and exemption from recent Irish corporate law reforms.

A new Irish fund structure that is “set to revolutionize the Irish funds industry”, according to Irish Prime Minister Enda Kenny, has officially launched. The Irish Collective Asset-management Vehicles (ICAV) Act 2015 was signed into law by Irish President Michael Higgins earlier this month.

Kenny first pledged to implement the bill during a conference sponsored by the Irish Funds Industry Association last June. Vowing to launch the ICAV structure by the end of 2014, the Prime Minister stated the vehicle would “open up the Irish investment fund market to new participants, providing new solutions for managers who use Ireland.”

The ICAV boasts several advantages over the existing corporate structure for funds in Ireland—the public limited company (plc). The new vehicle is not subject to much of the Irish and European company law and accounting rules that currently apply to plcs, which should result in lower administrative costs.

The primary benefit of the ICAV is that it will be able to elect its classification under the US “check-the-box” taxation rules to be treated as a transparent entity for US federal income tax purposes. This will result in an ICAV being treated as a partnership (if it has more than one investor) or a “disregarded entity” (if it has only one investor) for US tax purposes and allow US investors to avoid certain adverse tax consequences that would normally apply to passive foreign investment companies.

Existing offshore funds will have the opportunity to re-domicile to Ireland and continue to maintain favorable tax treatment for their US taxable investors. Indeed, alternative asset manager Permal Group is in the final preparations of moving some of its BVI separate accounts, totaling approximately $4 billion, into a newly launched Permal ICAV. Existing plcs will also be able to convert to an ICAV and it is expected that many will take advantage of this option.