The reform of the Irish Investment - Deloitte

The reform of the Irish Investment Limited Partnership


Overview of the ILPThe ILP is a regulated common law partnership constituted under a limited partnership agreement entered into between one or more general partners (“GP”) and an unlimited number of limited partners (“LP”). An LP’s liability is limited to the value of its committed or contributed capital. An ILP does not have legal personality and as such, the GP is responsible for managing the ILP’s business. The GP must be a body corporate and the CBI has recently confirmed that the GP is not required to be approved as an alternative investment fund (AIF) management company. However, the GP is subject to the CBI fitness and probity regime and therefore the GP’s directors must be approved by the CBI to perform pre-approval controlled functions.

An ILP’s assets, liabilities and profits belong jointly to its partners in the proportions agreed in the partnership agreement, and the relevant Irish tax legislation reflects this.

Tax treatmentFrom an Irish tax perspective, the ILP is tax transparent. Irish income tax and corporation tax does not arise at the level of the ILP. Income, gains and losses are instead treated as arising or accruing to the partners in accordance with the terms

of the partnership agreement. Such “look-through” tax treatment can be important to investors in being able to treat returns as retaining their original character for their own tax purposes, as well as for the purposes of obtaining reliefs or exemptions under double tax treaties or domestic tax law.

It is important to note that the ILP’s flexibility in being able to facilitate investment in a variety of asset classes by a variety of investor types, brings with it the need for caution in ensuring that structuring solutions (e.g. asset holding subsidiaries) are tailored to achieve the optimum structure from a tax perspective. In addition, with the expected introduction of anti-reverse hybrid rules in Irish tax law in 2022, it will be important to understand whether those rules may apply to an investment structure that features an ILP.

Regulatory contextThe reformed ILP regime extends anti-money laundering (AML) beneficial ownership requirements to ILPs and provides new requirements for the CBI to maintain records of all ILPs authorised. This aligns the requirements with other funds legislation, including the EU Alternative Investment Funds Managers Directive (AIFMD).

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The Irish investment limited partnership (“ILP”) was first launched as a fund vehicle in July 1994 and was welcomed as an important step in the development in the Irish funds industry which, at the time, directly employed approximately 600 people and had approximately €16 billion assets under management. Currently, Irish domiciled investment funds manage approximately €3.2 trillion of assets and the industry employs over 16,000 people in Ireland. Over that time however, only a small number of ILPs were launched, due in the main to the ILP legislation not having kept pace with the development of similar Irish and foreign fund products. In December 2020, amending legislation introduced significant changes to the ILP which will make it an attractive option to investment managers seeking a flexible private fund product regulated as an alternative investment fund (“AIF”) by the Central Bank of Ireland (“CBI”).

Other key changes to the ILP regime

• The definition of LP further clarifies the limited liability nature of a limited partnership interest;

• ILPs may establish umbrella funds with segregated liability between sub-funds in the event of insolvency (similar to other regulated fund types);

• The ability to register an alternative foreign name in order to enable an ILP operating in a non-English speaking jurisdiction to have official recognition of a translated name in that jurisdiction;

• The CBI will maintain records of all authorised ILPs, which aligns with other regulated fund types;

• The regime makes allowance for a liability regime for depositories as introduced under AIFMD, and allows an ILP to indemnify against liability;

• An ILP agreement may be amended with the approval of a majority of limited partners (by value, number of

class for example) and a majority of the general partners. The consent of all limited partners will no longer be required, unless provided for within the limited partnership agreement;

• The ability to divide LPs into sub-categories for regulatory reasons, fee treatment, voting etc.;

• Relaxation of requirements on withdrawal of capital.

Application datesThe amending legislation set two commencement dates - all provisions took effect from 1 February 2021, with the exception of the new provisions on beneficial ownership for ILPs (and Common Contractual Funds) which will commence from 1 March 2021 to ensure that the CBI has sufficient time to set up the appropriate registers.

ConclusionThe reform of the ILP legislation is a key milestone in the ongoing growth of the Irish funds industry. It adds to the Irish fund product offering and is expected to be a catalyst for significant further growth of the €770 billion of assets already under management in Irish alternative regulated funds. Investment managers pursuing opportunities in private equity/debt, infrastructure and ESG investments in particular will welcome these reforms.

Please don’t hesitate to reach out to our specialists or your usual Deloitte contact if you require support on any of the matters discussed above.


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The reform of the Irish Investment - Deloitte