Vanguard Ireland domiciled funds

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steveyg50
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Vanguard Ireland domiciled funds

Post by steveyg50 » Wed Sep 18, 2019 2:19 pm

Financial Services Compensation Scheme (FSCS) is the statutory fund of last resort
that can pay compensation to consumers if a financial services firm is unable, or likely to
be unable, to pay claims against it. The FSCS is an independent body, set up under the
Financial Services and Markets Act 2000 (FSMA).
Funds that are domiciled in the UK are covered by this scheme, while Ireland domiciled
funds are not covered by an equivalent Ireland scheme. In practice, for all UK and
EU authorised funds, the underlying investments must be held separately from the
fund manager by an independent trustee or depositary. With both Ireland and UK
authorised funds, in the event that a fund provider defaults, the underlying investments
will remain intact.


I know its unlikely Vanguard will go bust but I am not happy that so many funds are domiciled in Ireland.
Looks like they are not covered by FSCS.

Why are Vanguard UK funds even domiciled in a Foreign country? Is it basically a tax fiddle(for Vanguards benefit), or is it just because its of benefit to me, for example as in below case -
https://www.moneyobserver.com/etf-inves ... g-domicile

I am generally annoyed with Ireland given their various 'sweetheart' tax deals TBH. And now they seem to getting huge amounts of fund business,i thinks it's 30 % of all EU now?

I hope there are no Brexit implications?

Is there any need for me to be in any way concerned?

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Tyler Aspect
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Re: Vanguard Ireland domiciled funds

Post by Tyler Aspect » Wed Sep 18, 2019 2:38 pm

Lyxor Core MSCI World (LCWD.L) is domiciled in the country of Luxembourg. Luxembourg is also known for favorable tax deals.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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BeBH65
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Re: Vanguard Ireland domiciled funds

Post by BeBH65 » Wed Sep 18, 2019 3:03 pm

We have a wiki page that discussed Ierland domiciled funds and compares them with US-domiciled funds.

I assume the legislation that you refer to is UK legislation?

Looking at vanguard.co.uk it seems that several (traditional) funds seem to be domiciled in Great Britain (Isin starts with GB), while Exchange Traded Funds (ETFs) are often domiciled in Ireland.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Wed Sep 18, 2019 3:06 pm

Ireland is a leading European domicile for exchange traded funds. Irish domiciled ETFs represent more than 50% of the total European ETF market. The maturity of the Irish service model ensures that ETF issuers have access to service providers with highly automated and scalable global models.

50% of European ETF!

I can't think this is at all good. Seems a bit like Iceland 10 years ago to me. I'm sure it's more complicated but these small countries managing all these funds.... Just doesn't seem quite right.

oogZoo
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Re: Vanguard Ireland domiciled funds

Post by oogZoo » Wed Sep 18, 2019 4:39 pm

If the funds were domiciled in UK, nobody in other EU countries would be using them currently.

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steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Wed Sep 18, 2019 6:51 pm

Yes BeBH65, UK financial compensation scheme. Its 85k per company/financial institution should they go belly up.

Its interesting Ireland don't have such a scheme, and all the Ireland domiciled funds therefore have no compensation. You'd think they would have such a scheme, to attract business, but looks like they don't need one, no one seems to care, I must be paranoid. They do say 'in the event that a fund provider defaults, the underlying investments
will remain intact.' I guess we have to believe this.

I had all my savings in Icesave when it collapsed, so I am bit wary. I did get it all back with FSCS though. That was Icesave bank, a bank I believe is a different ball game.

Even so, after that shock I greatly prefer all my investments to be FSCS covered and was very surprised to find my Ireland domiciled were not, I assumed I was covered since investing with 'Vanguard UK'.
.

DJN
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Re: Vanguard Ireland domiciled funds

Post by DJN » Wed Sep 18, 2019 7:27 pm

steveyg50 wrote:
Wed Sep 18, 2019 3:06 pm
Ireland is a leading European domicile for exchange traded funds. Irish domiciled ETFs represent more than 50% of the total European ETF market. The maturity of the Irish service model ensures that ETF issuers have access to service providers with highly automated and scalable global models.

50% of European ETF!

I can't think this is at all good. Seems a bit like Iceland 10 years ago to me. I'm sure it's more complicated but these small countries managing all these funds.... Just doesn't seem quite right.
Hi,
the UCITS legislation is the main regulatory framework for etf's in the EU. These regulations apply to all funds with the UCITS brand.
The compensation scheme in Ireland is more or less the same as most countries holding UCITS funds. The ICCL scheme will pay 90% of the amount lost, subject to a maximum of €20,000, to each investor. The money invested via a platform or agent such as a broker shouldn't be held directly by that firm but should be held by a custodian.
UCITS firms that are not UK domiciled are called "recognised firms" by the FCS where they are made available to UK retail investors.
Under UCITS V, the latest regulations which were adopted first by Ireland, it is required that financial instruments held in custody are registered in segregated accounts so that they can be clearly identified as belonging to the UCITS at all times. A depositary (or its delegate) is prohibited from re-using the assets which it holds in custody for its own account.
This area is complex but investment in an Irish regulated scheme would not seem to me to be any more fraught with problems than for instance Luxembourg, Jersey or the Isle of Man. (the Irish Central Bank has an important regulatory role and is recognised in its deliberations across Europe and the comparison to Iceland doesn't seem analogous).
DJN
Yah shure

glorat
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Re: Vanguard Ireland domiciled funds

Post by glorat » Wed Sep 18, 2019 8:22 pm

Tyler Aspect wrote:
Wed Sep 18, 2019 2:38 pm
Lyxor Core MSCI World (LCWD.L) is domiciled in the country of Luxembourg. Luxembourg is also known for favorable tax deals.
Er no, to my knowledge. Ireland domiciled funds get hit with 15% withholding taxes, whereas Luxembourg domiciled funds get hit with 30% withholding taxes. Not favorable.

Topic Author
steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Wed Sep 18, 2019 8:49 pm

https://monevator.com/investor-compensation-scheme/

This article says Vanguard Irish domiciled funds are not covered by Irish compensation scheme. I think I may ask Vanguard..

Comparing to Iceland was a bit unfair, but the Irish compensation is only 20,000 euro, the article says its 500,000 dollars in US. 85K in UK, Is there some relation to size of country/economy here?

Let's be honest, seems to me funds are domiciled in small countries due to tax fiddles basically. And if its true there is no compensation, I wish my funds were in UK.

Having said that if Vanguard were to fall, I suppose that's pretty much the end of the world as we know it 😊

DJN
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Re: Vanguard Ireland domiciled funds

Post by DJN » Wed Sep 18, 2019 9:16 pm

steveyg50 wrote:
Wed Sep 18, 2019 8:49 pm
https://monevator.com/investor-compensation-scheme/

This article says Vanguard Irish domiciled funds are not covered by Irish compensation scheme. I think I may ask Vanguard..

Comparing to Iceland was a bit unfair, but the Irish compensation is only 20,000 euro, the article says its 500,000 dollars in US. 85K in UK, Is there some relation to size of country/economy here?

Let's be honest, seems to me funds are domiciled in small countries due to tax fiddles basically. And if its true there is no compensation, I wish my funds were in UK.

Having said that if Vanguard were to fall, I suppose that's pretty much the end of the world as we know it 😊
Hi,
I think that it would be more useful to understand the structural issues and the segregation of funds rather than the compensation scheme. To a longer term investor the compensation scheme would be of less importance than the principles of segregation and governance. The compensation levels in all schemes are always something to avail of but with a larger portfolio they make a lot less difference. The compensation scheme should be mostly irrelevant for most investors as long as they stick to the best largest etfs managed by the most reputable companies.
In regards to your comments about tax fiddles I am assuming that this is a throwaway remark. The concentration of funds in Ireland has as much to do with the available resources and skills and the supportive regulatory environment while the tax structuring plays an important supporting role.
Even if Vanguard were to fall your securities should be safe.
DJN
Yah shure

Topic Author
steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Thu Sep 19, 2019 7:31 am

I am sure you are correct.

But I personally will continue to split between Vanguard, Fidelity and Blackrock, but will exceed any compensation levels eventually,even uk ones.

Well both Ireland and Luxemberg are tax havens, there's no doubt about that. Both currently in trouble with EU regarding sweetheart deals. Ireland have been charging Apple 1% and it was in the news in 2014 billed Apple 0.005%.
Last I heard Ireland still fighting all the way to the supreme Court to fight against orders to collect billions in taxes.

Luxembourg ordered by EU to collect about 1/4 billion euro last I heard.

The Telegraph recently called Luxembourg "a micro-state that has become a byword for corporate tax-dodging".

Both these countries are active in the EU to prevent the EU trying to prevent sweetheart tax deals.

Now both these countries being tax havens and infamous for sweetheart tax deals must surely be linked to both these countries hoovering up all the ETF business? I sure don't know this as a fact but it is at least quite likely.

AlohaJoe
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Re: Vanguard Ireland domiciled funds

Post by AlohaJoe » Thu Sep 19, 2019 7:37 am

steveyg50 wrote:
Wed Sep 18, 2019 8:49 pm
Let's be honest, seems to me funds are domiciled in small countries due to tax fiddles basically. And if its true there is no compensation, I wish my funds were in UK.
No, they are domiciled outside of the UK because up until 2014 the UK charged a 0.5% stamp duty on all purchases of ETFs domiciled in the UK. Even now, I think they still charge the stamp duty on ETFs that hold any UK equities.

A 0.5% stamp duty is massive and makes investing in ETFs untenable. The UK got rid of the stamp duty but not before every fund in the world had already set up business in Ireland.

I wouldn't call that a "tax fiddle" and I doubt you wish you were paying a 0.5% stamp duty every time you bought an ETF.

DJN
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Re: Vanguard Ireland domiciled funds

Post by DJN » Thu Sep 19, 2019 8:23 am

steveyg50 wrote:
Thu Sep 19, 2019 7:31 am
I am sure you are correct.


Well both Ireland and Luxemberg are tax havens, there's no doubt about that. Both currently in trouble with EU regarding sweetheart deals.
Hi,
Published on July 24 2017 in the academic journal Scientific Reports, the paper Uncovering Offshore Financial Centers presented the following:
"Conduits and Sinks in the Global Corporate Ownership Network shows that offshore finance identified 24 sink OFCs, including well-known tax havens such as Luxembourg, Hong Kong, the British Virgin Islands, Bermuda, and the Cayman Islands, but also Taiwan, a heretofore unnoticed tax haven. ………..found that a handful of big countries – the Netherlands, the UK, Switzerland, Singapore and Ireland – serve as the world’s conduit OFCs. Together, these five conduits channel 47% of corporate offshore investment from tax havens, according to the data we analysed.
The Netherlands leads the pack with 23%, followed by the UK (14%), Switzerland (6%), Singapore (2%) and Ireland (1%)."
In terms of volume of investment channeling for tax purposes therefore the Netherlands and the UK are by far the largest conduits for tax havens. Ireland comes in 5th with only 1%.
If you check the traditional tax haven concept you will notice that the majority of them have some status with regards to the United Kingdom in respect to former colonial status or current affiliation.
DJN
.
Yah shure

Topic Author
steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Thu Sep 19, 2019 11:11 am

The UK is a large conduit due to being one of the world's largest financial centres I would assume.

The reason many small countries/territories that are tax havens are 'linked' to UK is because of historical world empire reasons and capitalist/democratic institutions instilled in them. They are now independent countries/territories. Or autonomous in the case of Jersey for example.

I just read that worse offenders regarding tax (corporate tax avoidance) in EU is Ireland, Luxembourg, Belgium, Netherlands, Hungary and Malta.

EU is considering trying to have harmonised corporate tax rules in EU because of all this. Basically its becoming a race to the bottom.

But tax rules changes have to be unanimous at the moment, so all these smaller countries will continually block it unless it can be changed to majority vote. Luxembourg with a population about the same as Liverpool can block the whole EU at the moment.

UK is the tax haven for foreign billionaires though.

https://www.irishtimes.com/business/tra ... 7?mode=amp


https://www.courthousenews.com/apple-an ... tax-deals/
Last edited by steveyg50 on Thu Sep 19, 2019 3:37 pm, edited 2 times in total.

michoco911
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Re: Vanguard Ireland domiciled funds

Post by michoco911 » Thu Sep 19, 2019 12:11 pm

What if you used a broker who had custody fees like Saxo Bank?
You would be protected in this case right?
30% VWRD 30% VUSD 40% AGGG until further notice

Topic Author
steveyg50
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Re: Vanguard Ireland domiciled funds

Post by steveyg50 » Thu Sep 19, 2019 5:08 pm

AlohaJoe wrote:
Thu Sep 19, 2019 7:37 am
steveyg50 wrote:
Wed Sep 18, 2019 8:49 pm
Let's be honest, seems to me funds are domiciled in small countries due to tax fiddles basically. And if its true there is no compensation, I wish my funds were in UK.
No, they are domiciled outside of the UK because up until 2014 the UK charged a 0.5% stamp duty on all purchases of ETFs domiciled in the UK. Even now, I think they still charge the stamp duty on ETFs that hold any UK equities.

A 0.5% stamp duty is massive and makes investing in ETFs untenable. The UK got rid of the stamp duty but not before every fund in the world had already set up business in Ireland.

I wouldn't call that a "tax fiddle" and I doubt you wish you were paying a 0.5% stamp duty every time you bought an ETF.
Excellent point.

On the other hand Ireland have duty of 1% on their shares, there was a clever decision to not apply that to ETF and make sure they got as much of the ETF business as possible. The UK made a mistake there it seems.

Nonetheless that was corrected 5 years ago. Vanguard etc can easily set up ETF in UK now, there must be other reasons not to.

Wish they would get rid of the stamp duty on shares, but suppose the money has to come from somewhere.

bgreat
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Re: Vanguard Ireland domiciled funds

Post by bgreat » Sat Sep 21, 2019 10:04 am

steveyg50 wrote:
Thu Sep 19, 2019 5:08 pm
Nonetheless that was corrected 5 years ago. Vanguard etc can easily set up ETF in UK now, there must be other reasons not to.

Wish they would get rid of the stamp duty on shares, but suppose the money has to come from somewhere.
Now that they have large funds in IE, there's just no point in setting up a piddlingly small fund just for UK persons. Irish funds are already popular across the world, possibly in large part due to the 15% US withholding thanks to treaty, which is important when it comes to funds holding US stocks (incidentally the UK also appear to have 15% US treaty withholding - so the UK would be just as good a home nowadays, but it's just too late).

I.e. I'm seeing people recommending IE funds all around EMEA for various reasons (lowest withholding penalty for EU citizens, lowest taxation total for countries without dual tax treaties, etc.) That ship has sailed, and except for UK residents there's literally no difference between UK and IE funds, its just that IE won the race.

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