Purpose For Establishing A CCF Structure in Ireland
The majority of pension funds are entitled to favourable withholding tax treatment on investments. For instance, in Holland, exempt Dutch pension funds qualify for a 0% withholding tax in the US in respect of dividends paid on their holdings in US equities. However, where a pension fund acquires US equities through a separate investment entity, dividend income will typically attract withholding tax.
For example, an exempt Dutch pension fund that invests in US equities through an Irish investment company will suffer a withholding tax of 30% on the dividends paid on US equities held by the Irish investment company. Assuming an average annual dividend return of 2% per annum on US equities, these withholdings represent an annual tax leakage of 60 basis points from the Irish collective scheme.
In turn, this tax leakage represents an equivalent underperformance by the underlying exempt Dutch pension fund. In order to address this issue, the Irish funds industry sought an intermediary structure for pension funds that would deliver optimal tax status so that the underlying pension fund’s investment would be treated in the same way from a tax perspective as if it had made the investment directly. The result has been the common contractual fund.
The CCF not only presents advantages for pension funds but it is equally important for the investment managers of pension schemes who can consolidate their pension fund clients into one CCF. The primary advantage for the investment manager is the tax savings on investment returns. In addition, in managing only one fund structure rather than a number of fund structures, there should be economies of scale and operational efficiencies for the investment manager which should result in a lower cost base for the investment manager in providing its services to clients. This cost saving can either be retained by the investment manager or partly or fully passed on to clients to ensure that the investment manager retains a competitive advantage on pricing with its clients.
Read more about this topic: Common Contractual Fund
Famous quotes containing the words purpose, establishing, structure and/or ireland:
“The purpose of education is to keep a culture from being drowned in senseless repetitions, each of which claims to offer a new insight.”
—Harold Rosenberg (1906–1978)
“The conclusion suggested by these arguments might be called the paradox of theorizing. It asserts that if the terms and the general principles of a scientific theory serve their purpose, i. e., if they establish the definite connections among observable phenomena, then they can be dispensed with since any chain of laws and interpretive statements establishing such a connection should then be replaceable by a law which directly links observational antecedents to observational consequents.”
—C.G. (Carl Gustav)
“The philosopher believes that the value of his philosophy lies in its totality, in its structure: posterity discovers it in the stones with which he built and with which other structures are subsequently built that are frequently better—and so, in the fact that that structure can be demolished and yet still possess value as material.”
—Friedrich Nietzsche (1844–1900)
“The tragedy of Northern Ireland is that it is now a society in which the dead console the living.”
—Jack Holland (b. 1947)