ATO ID 2011/4: Irish Investment Limited Partnerships and managed investment trusts
Date of decision: 16 December 2010
Year of income: Year ended 30 June 2011 Year ended 30 June 2012 Year ended 30 June 2013 Year ended 30 June 2014
Business line: Public Groups and International

Issue
Is an Irish Investment Limited Partnership (Irish ILP) that is a member of an Australian Trust, an entity that is covered by the requirements of paragraph 12-402(3)(e) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Decision
Yes. The Irish ILP that is a member of an Australian Trust is an entity that is covered by the requirements of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953.

Facts
The Irish ILP is authorised as an 'investment limited partnership' by the Central Bank of Ireland pursuant to the provisions of the Republic of Ireland's Investment Limited Partnerships Act 1994 . According to Regulatory Notices made by the Irish Financial Services Regulatory Authority (a division of the Central Bank of Ireland), an authorised Irish ILP is recognised as a 'collective investment scheme'. Pursuant to the Irish ILP's Partnership Agreement, the principal business of the Irish ILP is the investment of its funds in real or personal property of whatever kind, including securities, and wherever located. The Irish ILP consists of one General Partner and at least 50 Limited Partners. The General Partner is an Irish private limited company. For a commercial fee, the General Partner manages the day-to-day operation of the Irish ILP, including all investment and administrative decisions. To assist in the day-to-day operation of the Irish ILP, the General Partner delegates some of the day-to-day activities to a Management Company and an Administrator, neither of which have any interest in the Irish ILP. The General Partner does not provide any capital contribution to the Irish ILP and does not have any interest in the Irish ILP's investment proceeds. The Limited Partners are investors that have each acquired an interest in the Irish ILP by making a minimum capital contribution as required in the Irish ILP's Partnership Agreement. The Limited Partners are entitled to the Irish ILP's investment proceeds, in accordance with their share of the interest in the partnership. No Limited Partner takes part in, or has control over, the day-to-day operation of the Irish ILP and no Limited Partner has the right to choose which investments made by the Irish ILP they will participate in. All contributions made by the Limited Partners are entrusted for safekeeping to a Custodian appointed by the General Partner.

Reasons for decision
Summary: Subdivision 12-H of Schedule 1 to the TAA 1953 deals with Pay As You Go withholding obligations for distributions of managed investment trust income. As part of the 'widely-held requirements' for certain management investment trusts, subsection 12-402(3) of Schedule 1 to the TAA 1953 specifies certain widely-held entities whose participation interests in the trust are multiplied by 50 to provide a 'notional number' of members of the trust. This, in turn, is used to determine whether the trust then satisfies the widely-held requirements in subsection 12-402(1) of Schedule 1 to the TAA 1953. Paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 specifies the following type of entity: an entity that is recognised under a *foreign law as being used for collective investment by means of pooling the contributions of at least 50 members of the entity as consideration to acquire rights to benefits produced by the entity, if the members of the entity do not have day-to-day control over the operation of the entity. According to the Revised Explanatory Memorandum (EM) to the Tax Laws Amendment (2010 Measures No 3) Bill 2010 (TLAB (No 3) Bill 2010), paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 targets: ... a foreign collective investment vehicle, which is an entity with at least 50 members that is recognised under a foreign law as being used for collective investment where the member contributions are pooled together in exchange for rights to the benefits produced by the entity and where members do not have day-to-day control over the operation of the entity. ... (paragraph 5.79 of the Revised EM to the TLAB (No 3) Bill 2010). Therefore, the Irish ILP must be recognised under a foreign law as being used for collective investment and the entity itself must also satisfy the remaining three requirements of paragraph 12-402(3)(e). That is, the Irish ILP must: | Detailed Reasoning - 'recognised under a foreign law as being used for collective investment': The first requirement involves the entity being recognised under a foreign law as an entity which is used for collective investment. The Irish ILP is authorised as an investment limited partnership by the Central Bank of Ireland in accordance with the provisions of Ireland's Investment Limited Partnerships Act 1994 . To achieve its status as an Irish investment limited partnership under the Investment Limited Partnerships Act 1994 (Ireland), the entity must: Furthermore, pursuant to Regulatory Notices issued by the Irish Financial Services Regulatory Authority, investment limited partnerships are recognised as collective investment schemes. A 'foreign law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 as a law of a foreign country. The Investment Limited Partnership Act 1994 is a law of the Republic of Ireland and is accordingly a 'foreign law' for the purposes of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953. Therefore, as an authorised investment limited partnership that is recognised as a collective investment scheme under the Irish law, the Irish ILP is recognised under a foreign law as being used for collective investment. | Detailed Reasoning - 'pooling of contributions of at least 50 members of the entity': Paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 requires that the entity pool the contributions of at least 50 members. The contributions made by all of the Limited Partners of the Irish ILP are entrusted for safekeeping to the Custodian, in accordance with the requirements of the Irish law. The Limited Partners then do not, under the Partnership Agreement, have the right to choose which of the investments made by the Irish ILP they can participate in. The contributions are therefore 'pooled'. As there are more than 50 Limited Partners of the Irish ILP, this requirement that there is a pooling of contributions of at least 50 member of the entity in paragraph 12-402(3)(e) of the Schedule 1 to the TAA 1953 is satisfied. | Detailed Reasoning - 'as consideration to acquire rights to benefits produced by the entity': Paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 requires there be consideration from the 50 or more members of the entity to acquire rights to benefits produced by the entity. This requirement is satisfied as each Limited Partner provides a capital contribution to the Irish ILP and receives their share of the ILP's investment proceeds based on the amount of their contribution. | Detailed Reasoning - 'members of the entity do not have day-to-day control over the operation of the entity': The final requirement in paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 is that the members of the entity do not have day-to-day control over the operation of the entity. This requirement has its origins in the previous formulation of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 which referred to the definition of 'managed investment scheme' in section 9 of the Corporations Act 2001 . Context and legislative history demonstrate that this requirement, in conjunction with the aforementioned requirements, is intended to encapsulate entities where the members (essentially the investors) do not have day-to-day control over their investment but where that function is 'handed-over' and performed by a professional manager. That is, the requirement delineates between investments where control of the collective funds is vested in the group of investors and where control is vested in an entity who manages the funds on behalf of the group. The organisation and management of the Irish ILP in this arrangement meets the latter description. The Limited Partners, the investors, do not have day-to-day control over their investments, the investment decisions of the Irish ILP or the daily management of the Irish ILP. It is only the General Partner, as assisted by the Management Company and the Administrator, that has control. | Detailed Reasoning - Conclusion: As each of the elements are satisfied in relation to the Irish ILP, the Irish ILP is an entity covered by paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953.

Legislative references: Income Tax Assessment Act 1997 subsection 995-1(1)
Other references: Revised Explanatory Memorandum to the Tax Laws Amendment (2010 Measures No 3) Bill 2010
Subject references: Collective investment vehicles Investment trusts PAYG withholding Republic of Ireland