Irish "Approved Retirement Fund" taxation

[murphaph]

Hi all,
I am considering what route to take with my Irish defined contribution pension fund. I have 2 options in Ireland:
1) use the fund to buy a traditional annuity, which would be taxable in Germany as far as I understand it or
2) use the fund to invest in a so-called "approved retirement fund" (ARF), from which annual drawdowns are made.

I believe that Ireland and Germany have agreed in their DTA that the drawdowns (called "distributions" in Irish tax law) from an ARF shall only be taxable in Ireland. Source:

1. With reference to this Agreement as a whole:
a) Retirement Benefit Schemes in Ireland
It is understood that,taking account of
aa) tax-relief given for contributions or premiums paid in re-
spect of retirement benefit schemes, retirement annuity
contracts or other pension products in accordance with
Part 30 of the Taxes Consolidation Act 1997 of Ireland,
and
bb) the exemption from tax of income and gains accruing to
a fund(referred to in this paragraph as a “pension fund”)
created by such contributions or premiums,
distributions (for the purposes of section 784A of the Taxes
Consolidation Act 1997) from an approved retirement fund
(within the meaning of that section) that was created by the
transfer of accrued rights or assets from a pension fund shall
only be taxable by reference to the provisions of that section,
notwithstanding any provision of this Agreement.

https://www.bgbl.de/xaver/bgbl/start.xa ... 9398389814
(Part of the protocol on page 22)

So, I think the taxation of the distributions from the ARF is clearly handed over to Ireland. Is that correct?

However, there is the question of the taxation of the growth of the ARF. If this was a German ETF etc. there would be a Vorabpauschale to consider. Is there a Vorabpauschale applied to an ARF where the taxing rights for the distributions are ceded to another country, in this case Ireland?

I suspect this is a very niche area but maybe someone has done it?

[murphaph]

I'm wondering if the Irish ARF wouldn't be considered equivalent to a German Betriebsrente or Riester-Rente etc. These funds as far as I know are not taxed during the growth phase ("Nachgelagerte Besteuerung", no Vorabpauschale stuff like with a "normal" investment fund). Is this something the Finanzamt will give clarity on if I write to them and just ask how such a retirement fund would be taxed? Or do I need to find a specialist Steuerberater with specific knowledge of the Irish German DTA? Any ideas welcome. Thanks all.

[john_b]

Don't shoot me down for suggesting this, but just FWIW have you asked ChatGPT?

Yes, I know results should ALWAYS be treated with a healthy amount of scepticism - AI is always trying to please and rarely if ever says "I don't know" (!!!) - but it might help clarify your questions which are, by definition, rather niche....

I'm rather closer to retirement than you, and this year I've been making progress to work out the the years I spent living and working in the UK alongside the years in Germany, with a couple of years in Denmark thrown in for good measure.

I actually find that AI is quite helpful at summarising and condensing complex questions of this sort. As I said, it's worth giving it a spin, even if you ultimately decide to pay a professional tax/pension advisor.

Viel Spaß!!

[murphaph]

Cheers John. Indeed it was AI (Gemini) that threw up the question mark surrounding the taxation of the growth of the fund. It was out of ideas, probably because it's so niche there are unlikely to be published examples on the internet for these LLMs to be trained on. Initially Gemini incorrectly stated that the distributions themselves would be subject to German income tax. Once I pointed it at the protocol to the DTA, it correctly understood that Ireland retains the sole rights to tax those distributions, but there is absolutely no mention made of the taxation of the fund growth. I think this is so niche that nothing short of written confirmation from the Finanzamt will be safe to run wth. If I can't get that written confirmation, I will probably have to take an annuity rather than an ARF as the taxation of annuities is absolutely clear.

[murphaph]

No concrete update but I am hopeful that the proposed overhaul of the Riester-Rente will bring in a very similar product to the ARF in Ireland. As long as tax is deferred all the way until disposal then the funds should be considered equivalent. Interesting times ahead. Riester should have been reformed years ago.

[Fraufruit]

Reformations rarely help the investors.

[murphaph]

Well what's being talked about is a helluva lot better than the Riester with its shitty returns and high costs. It looks like we may finally be able to invest in low cost ETFs in tax sheltered manner. At the moment we are saving for our retirement using ETFs in a non-tax sheltered way because even without the tax advantages the returns wipe the floor with Riester products. We have to pay the Vorabpauschale every year. If we can get similar costs but not have to pay the Vorabpauschale and only pay income tax when the funds are drawn down, that will be a significant improvement and bring Germany into like with other countries (think US 401ks, UK ISAs, Irish PRSAs). At the moment all we have is the Riester and it has abysmal returns because it's very complex owing to the fact that a Riester fund must deliver at least the amount of funds invested into it upon retirement. That places huge burdens on the pension companies selling them and these costs are taken out of the returns. The new system will allow us to invest in funds without a guranteed minimum return, so low cost ETFs can be wrapped in the tax-sheltered mechanism and we are off to the races. They are also talking of paying a 30%/20% subsidy on the first 1800€ saved (with further incrememts for each dependent child).

We should know more on the 17th when it's due to be brought to cabinet.