Tax Framework of Investment Funds in the European Union: A Comparative Analysis of Portugal, Luxembourg, and Ireland

Abstract

This study analyses the typology, legal framework and tax implications of investment funds in the European context, with particular emphasis on the distinction between Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). It examines the structural, regulatory and tax differences between these categories, as well as the challenges of tax neutrality and cross-border tax coordination arising from the fragmentation of national tax systems within the European Union. The research adopts a qualitative and interpretative approach based on legal-dogmatic analysis and a review of the relevant literature, with particular consideration of Directive 2009/65/EC (UCITS Directive), Directive 2011/61/EU (AIFMD), OECD principles and recent scholarship on international taxation. The analysis shows that the European investment fund regime is characterized by a high degree of prudential harmonization, in contrast to persistent fiscal fragmentation among Member States. By applying a common comparison matrix to Portugal, Luxembourg and Ireland, the study demonstrates that formal adherence to fund-level tax neutrality coexists with materially different vehicle-level tax mechanisms: Portugal applies a partial exclusion regime, Luxembourg operates a subscription tax, while Ireland provides a full fund-level exemption. These differences demonstrate that regulatory harmonization under UCITS and AIFMD has not been matched by equivalent convergence in the technical design of vehicle-level tax rules and may therefore produce different investor-level tax outcomes in cross-border contexts. The distinction between UCITS and AIFs remains central to the European regulatory architecture, reflecting different levels of investor protection, liquidity requirements and strategic flexibility, while AIFs are more heterogeneous and may involve greater exposure to illiquidity, leverage and management costs. The findings further indicate that differences in fund-level taxation, withholding mechanisms, treaty access and exit-tax or deemed-disposal rules continue to affect the location and structuring of investment funds, creating practical challenges for fund managers, tax authorities and institutional investors. Although the case law of the Court of Justice of the European Union and international initiatives such as the OECD’s BEPS project have contributed to reducing explicit discrimination and abusive tax practices, prudential harmonization has not eliminated the tax asymmetries that constrain full economic neutrality. The study concludes that the consolidation of a genuine internal market for investment funds requires not only continued prudential harmonization but also stronger tax coordination, particularly through more consistent cross-border tax reporting and financial disclosure requirements.

1. Introduction

Investment funds play a fundamental role in financial markets, serving as key instruments for mobilizing savings and ensuring the efficient allocation of capital. By pooling resources from multiple investors, these vehicles provide access to a wide range of financial assets which might otherwise be beyond the reach of many investors (Zetzsche, 2018; Spilioti & Anastasiou, 2024). In this way, investment funds contribute to more efficient portfolio management, benefiting from economies of scale, professional asset management and a greater spreading of investment costs (Wójcik et al., 2022).

Given their economic significance, their regulatory framework has been strengthened, particularly within the European Union, where the creation of an internal market for financial services has required the harmonization of the rules governing collective investment (Troisi & McFarlane, 2016).

At European level, the distinction between undertakings for collective investment in transferable securities (UCITS) and Alternative Investment Funds (AIFs) forms the cornerstone of the applicable legal framework. UCITS, regulated by Directive 2009/65/EC, are primarily intended for retail investors and are characterized by high standards of liquidity, diversification and transparency, which enable their cross-border marketing on the basis of a single authorization and supervision regime.

AIFs, on the other hand, which fall under Directive 2011/61/EU, cover a broader and more diverse category of collective investment undertakings not covered by the UCITS regime, including hedge funds, private equity, property funds and private credit, and are characterized by greater strategic investment flexibility, but also greater exposure to risk and illiquidity.

Among the various structures of collective investment schemes, it is worth highlighting open-ended and closed-ended funds, as well as contractual and corporate legal forms. Whilst open-ended funds guarantee unitholders a right of redemption and require rigorous management of liquidity and asset valuation, closed-ended funds are more geared towards long-term investments and less liquid assets. Despite their formal differences, all these vehicles share a common economic function: the collective management of assets with a view to generating returns for investors and increasing the value of participants’ investments.

In this context, this paper analyses the legal and tax framework for investment funds under European law, with a particular focus on the distinction between UCITS and AIFs and its implications in regulatory and tax terms. The aim is to understand how the European model ensures market integration, investor protection and tax neutrality, in the light of OECD principles and the case law of the Court of Justice of the European Union (CJEU), adopting a perspective that is both descriptive and critical of the current regulatory framework. This study addresses the following research question: How do the tax regimes applicable to investment funds in Portugal, Luxembourg and Ireland differ, and what implications do these differences have for tax neutrality and the harmonisation of investment fund taxation within the European Union?

Unlike previous studies, which generally analyse either EU investment fund regulation or national taxation separately, this study develops a comparative legal analysis integrating the tax treatment of investment funds in Portugal, Luxembourg and Ireland under a common analytical framework. The study contributes to the literature by identifying the degree of convergence and divergence between these jurisdictions and discussing the implications for tax neutrality and the future harmonisation of EU investment fund taxation.

This study is organized as follows. Following the introduction, Section 2 presents the literature review and develops the theoretical background. Section 3 describes the research methodology, including the legal corpus and comparative-law approach adopted. Section 4 presents and discusses the findings of the legal and tax analysis. Finally, Section 5 concludes the study by summarizing the main findings, outlining their theoretical and practical implications, acknowledging the study’s limitations, and suggesting directions for future research.

2. Literature Review

Investment funds play a central role in the contemporary financial system, serving as key instruments for mobilizing savings and ensuring the efficient allocation of capital within the global economy (Spilioti & Anastasiou, 2024). By pooling funds from multiple investors, these vehicles enable the financing of various economic activities and promote a more efficient allocation of available resources, contributing to the development and stability of financial markets (Spilioti & Anastasiou, 2024; Troisi & McFarlane, 2016).

These vehicles enable the pooling of capital from multiple investors, promoting economies of scale, risk diversification and access to markets and assets that would be difficult to access on an individual basis. The literature highlights that this capacity to mobilize savings and redistribute capital contributes to economic growth and financial stability, with funds being one of the pillars of the modern financial system. With the growing economic importance of investment funds, there has been a significant effort towards regulation and international coordination, particularly on the part of the OECD and the European Union, aimed at ensuring market efficiency, financial integrity and investor protection (Wegman, 2016).

From a legal perspective, investment funds are characterized by their hybrid and heterogeneous nature, reflecting different legal traditions and institutional models. In many OECD Member States, these vehicles take the form of autonomous states, without legal personality, managed by specialized entities. In other legal systems, they take the form of companies, resembling traditional corporate structures (Zetzsche, 2018). This structural diversity poses significant challenges in terms of legal harmonization and international comparability, particularly regarding the tax and accounting treatment of the income generated by the funds. The literature emphasizes that the legal form adopted influences the recognition of income, the valuation of assets and their measurement at fair value, disclosure requirements (financial disclosure obligations) and tax reporting and compliance mechanisms, thereby creating potential asymmetries between states and opening the door to regulatory and tax arbitrage (Dourado et al., 2024; Jesus et al., 2024; Wegman, 2016).

At European level, the development of the investment fund market has been accompanied by an ongoing process of regulatory harmonization (Jesus et al., 2024). The UCITS Directive 2009/65/EC marked a decisive milestone by establishing a uniform regime for funds aimed at the general public, enabling a fund authorized in one Member State to be marketed throughout the Union since a single authorization regime. This model strengthens European financial integration and promotes confidence among retail investors, building on high standards of liquidity, diversification and transparency. In turn, the AIFMD Directive 2011/61/EU complemented this framework by introducing a harmonized regime applicable to alternative investment fund managers, with a particular focus on prudential supervision, risk management and reporting requirements.

It should be noted that the UCITS Directive and the AIFMD are not structurally equivalent instruments. The UCITS Directive establishes a product-level regime, regulating the fund itself, its management company, depositary and marketing conditions in considerable detail. The AIFMD, by contrast, is primarily a manager-authorisation and supervision regime: it regulates Alternative Investment Fund Managers rather than establishing a comprehensive, harmonised product-level framework for AIFs. Consequently, substantial aspects of AIFs product regulation, including eligible assets, investment restrictions, leverage and, in certain circumstances, retail investor access, remain subject to the applicable national legal framework. This distinction is particularly important because AIFs constitute a heterogeneous category encompassing, among others, hedge funds, private equity funds, real estate funds and private credit vehicles, whose investment strategies, liquidity profiles, leverage and investor bases may differ substantially. Accordingly, characteristics such as higher leverage, greater exposure to illiquid assets, longer investment horizons or predominantly professional and institutional investor bases should not be attributed to AIFs as a category without qualification. Rather, these features are more commonly associated with specific types of AIFs and their underlying investment strategies. For example, private equity and certain private credit or real estate funds may involve comparatively illiquid assets and longer investment horizons, while hedge funds may employ leverage and more complex investment strategies to varying degrees. Conversely, some AIFs may offer more liquid strategies, lower levels of leverage or access to retail investors where permitted under the applicable national regime. The analysis therefore treats these characteristics as features of particular AIFs types or investment strategies rather than as inherent attributes of the AIFs category as a whole.

These directives reflect the European Union’s objective of building an integrated internal market for financial services, reducing barriers to the movement of capital and promoting investor confidence.

Recent data highlight the economic scale of this sector: assets under management in the European investment fund industry amount to several trillion euros, confirming its systemic role in the European economy. The net assets of UCITS and AIFs domiciled in Europe totaled billions of euros (European Fund and Asset Management Association [EFAMA], 2025), with UCITS predominating in the retail segment and AIFs—including hedge funds, private equity and property funds—primarily targeting qualified institutional investors, with higher-risk strategies, lower liquidity and more complex cost structures. The predominance of UCITS funds in the retail segment contrasts with the role of alternative investment funds (AIFs), which are primarily aimed at institutional investors and characterized by more complex strategies, higher leverage and lower liquidity. This functional segmentation is widely discussed in the literature as reflecting different risk profiles and investment objectives, as well as different supervisory and regulatory requirements (European Fund and Asset Management Association [EFAMA], 2025).

Despite significant progress in terms of prudential harmonization, the taxation of investment funds remains characterized by considerable fragmentation across Member States. The absence of a harmonized tax regime has been identified as one of the main obstacles to the full realization of the internal capital market, leading to distortions in the allocation of investment and encouraging aggressive tax planning practices. In this context, the OECD has played a central role in defining guiding principles, in particular the principle of tax neutrality, according to which the tax system must ensure that the choice between direct and indirect investment (via funds) is not influenced by tax considerations, the principle of tax transparency and the principle of international cooperation, including mechanisms for the automatic exchange of information (OECD, 2023b).

The concept of tax neutrality is not unitary and requires further specification. At least the following dimensions can be distinguished: vehicle-level neutrality (whether the fund itself bears tax); investor-level neutrality (whether taxation at investor level replicates direct investment); capital-import neutrality (equal treatment of foreign and domestic investors within a given jurisdiction); capital-export neutrality (equal treatment of domestic investors investing at home or abroad); and formal non-discrimination as required under EU law, as distinct from full economic neutrality. The classifications of “partial”, “almost total” and “total” neutrality used later in this study (Section 4.5 and

Table 1. Comparative Table of Legal Regimes for Investment Funds.

Criteria	Portugal	Luxemburg	Ireland
Main Legal Basis	Decree-Law No. 27/2023 (RGA); UCITS and AIFMD Directives	Law of 17.12.2010 (UCITS); Law of 23.07.2016 (RAIF); SIF (2007)	Investment Funds Act of 2005; Central Bank regulations; UCITS and AIFMD
Supervisory Authority	CMVM	CSSF	Central Bank of Ireland
Main Fund Categories and Specialized Vehicles	UCITS and AIFMD - Contractual funds (without legal personality) - Companies (SICAV)	UCITS, AIF, SIF, RAIF, SICAR - FCP (contractual) - SICAV/SICAF - SIF, RAIF, SICAR	UCITS e AIF - Investment companies - ICAV - Unit trusts - CCF - ILP
Tax Regime of the Fund	Partial neutrality (art. 22 EBF) Exemption from various income	Exemption from direct taxes Tax contribution (0.05% or 0.01%)	Effective rate of 0% on income and capital gains
Taxation at the Investor Level	Yes (distributions and redemptions)	Yes (in the jurisdiction of residence)	Yes (exit tax and deemed disposal)
Non-Resident Investors	Generally exempt (without permanent establishment)	Generally not taxed in Luxembourg	Generally not taxed in Ireland
Withholding	Tax 28% (35% for tax havens)	Generally non-existent	Applicable in certain cases (exit tax)
Basic Tax Principle	Partial neutrality	Almost total neutrality	Total neutrality at the fund level
Strengths	Legal certainty; EU alignment	Flexibility; tax efficiency; diversity	Innovation (ICAV); efficiency; transparency
Limitations	Smaller scale; less diversity	Complexity of the regulatory system	International pressures (OECD/Pillar II)

Source: Personal elaboration.

) refer specifically to the extent of vehicle-level taxation retained in each jurisdiction, rather than to investor-level or economic neutrality in the broader sense.

This principle justifies the adoption of tax transparency or semi-transparency regimes, in which taxation is shifted from the fund level to the investor level. Such an approach aims to avoid economic double taxation and ensure equitable treatment among investors, but it poses significant challenges in terms of monitoring and tax compliance.

In line with this approach, many states have opted for regimes that eliminate or reduce taxation at fund level, shifting the tax burden to the end investor. This solution is based on the concept of the fund as an intermediary vehicle, taking the form of “various legal structures, such as public limited companies, limited partnerships or civil law associations…” (Bergt, 2023), rather than as an autonomous economic entity with its own tax liability. This shift has direct consequences for tax reporting and compliance: by transferring taxation to the investor, states now rely on robust mechanisms for financial disclosure and the exchange of information to ensure that income is effectively declared and to prevent the erosion of the tax base (Jesus et al., 2024).

This implies the need for robust systems for tax reporting, disclosure and the international exchange of information. The OECD, through initiatives such as the Common Reporting Standard (CRS), has sought to enhance transparency and combat tax evasion by promoting the automatic exchange of information between jurisdictions. Nevertheless, the literature indicates that significant gaps remain, particularly regarding the identification of beneficial owners and the harmonization of different national regimes (Dourado et al., 2024; Wegman, 2016).

Furthermore, recent case law from the Court of Justice of the European Union has contributed to the development of the tax framework for funds by reinforcing principles such as non-discrimination and comparability between domestic and foreign funds. These rulings emphasize that the taxation of funds must ensure neutrality and avoid distortion in the internal market, particularly with regard to the application of withholding taxes and tax benefits.

In summary, the literature highlights a persistent tension between regulatory harmonization and tax fragmentation in the field of investment funds. Whilst the European prudential framework has achieved high levels of integration, the diversity of tax regimes continues to pose a significant challenge to the efficiency of the internal market and the neutrality of the tax system. This reality underscores the importance of studies analyzing the interaction between legal structure, the tax framework and reporting obligations, thereby contributing to a more integrated understanding of the role of investment funds in the global financial system.

3. Materials and Methods

This research adopts a legal-dogmatic methodology complemented by a narrative literature review to conduct an integrated analysis of the legal and tax framework applicable to investment funds within the European Union. The choice of a legal-dogmatic approach is justified by the normative nature of the subject, which requires the systematic interpretation and comparison of sources of positive law, including European Union legislation, national legislation, case law and relevant international tax instruments. The literature review complements this analysis by providing the doctrinal and conceptual context necessary to interpret the regulatory and tax frameworks examined.

The analysis focuses primarily on Directive 2009/65/EC (UCITS) and Directive 2011/61/EU (AIFMD), considered in conjunction with relevant national implementing legislation and tax provisions. These sources are examined alongside OECD principles concerning tax neutrality and cross-border taxation, as well as relevant CJEU case law and BEPS-related policy documents. The purpose is not to treat these international and European instruments as equivalent sources of law, but to use them as complementary normative and interpretative benchmarks for assessing the interaction between EU regulatory harmonization and national tax autonomy.

The narrative literature review was conducted using thematic relevance, relevance to the comparative research question, recency and academic contribution as selection criteria. Priority was given to scholarly works addressing European investment fund regulation, collective investment taxation, international tax neutrality, cross-border investment and financial market regulation. Relevant academic and legal databases were consulted to identify the main doctrinal approaches and contemporary debates surrounding the taxation and regulation of investment funds.

The research also includes an analysis of relevant CJEU case law, particularly judgments concerning the compatibility of national tax measures with the fundamental freedoms established by the Treaty on the Functioning of the European Union (TFEU), with particular emphasis on the free movement of capital under Article 63 TFEU. Cases concerning differences in the tax treatment of resident and non-resident investment funds were examined to identify the Court’s criteria concerning comparability, discrimination and restrictions on cross-border investment.

In addition, OECD reports and BEPS-related policy documents were examined as international policy and soft-law instruments. These sources provide benchmarks for assessing tax neutrality, transparency, cross-border taxation and the prevention of tax base erosion. They do not constitute binding European Union or national law and are therefore used primarily to contextualize and interpret the findings of the comparative legal analysis.

The empirical object of the comparative legal analysis comprises three EU jurisdictions: Portugal, Luxembourg and Ireland. Portugal was selected as a medium-sized EU jurisdiction with an established investment fund industry and a nationally specific tax framework. Luxembourg was selected because of its position as Europe’s largest investment fund domicile and a major international fund centre. Ireland was selected because of its importance as a leading cross-border fund centre and its distinctive fund taxation model. The three jurisdictions were therefore selected purposively because they operate under the same EU prudential framework while presenting relevant differences in the design of investment vehicles and their tax treatment.

The comparative analysis applies a common analytical matrix consistently to the three jurisdictions. The matrix comprises eight dimensions: (i) the main legal basis and relevant EU transposition instruments; (ii) the competent supervisory authority; (iii) the principal legal forms and categories of collective investment undertakings; (iv) fund-level tax treatment; (v) taxation at investor level; (vi) treatment of non-resident investors; (vii) applicable withholding tax mechanisms; and (viii) the underlying tax-neutrality principle pursued. The same criteria were applied to each jurisdiction in order to identify common features resulting from EU regulatory harmonization and divergences arising from national legal and tax rules.

The comparative procedure consisted of three stages. First, the applicable legal and tax framework was identified separately for each jurisdiction. Second, the information was classified according to the eight dimensions of the common comparison matrix. Third, the three jurisdictions were compared to identify convergences and divergences in regulatory structure, vehicle-level taxation, investor-level taxation and the treatment of cross-border investors. The resulting comparison is presented in Table 1.

The OECD principles, CJEU case law and BEPS developments are subsequently used as interpretative benchmarks to assess the implications of the comparative findings for tax neutrality and the free movement of capital. Accordingly, the analysis distinguishes between findings directly generated by the comparative matrix and the subsequent normative interpretation of those findings. This distinction allows the study to assess whether the prudential harmonization achieved under the UCITS and AIFMD frameworks has been accompanied by a comparable degree of convergence in national tax rules.

4. Results

4.1. Comparative Regulatory and Tax Framework

The international dimension of investment fund activity presents additional challenges about tax competition between states. There is a dynamic of competition between countries seeking to attract investment funds through more favorable legal and tax regimes. Whilst such competition may stimulate regulatory innovation and market efficiency, it can also raise concerns regarding the erosion of tax bases and the misuse of cross-border structures. The OECD has sought to address these risks through international cooperation initiatives, such as the Base Erosion and Profit Shifting (BEPS) project, which aims to combat aggressive tax planning practices without compromising the legitimate functioning of capital markets (Zetzsche, 2018). The tension between tax competitiveness and the prevention of abuse is thus one of the central themes of the contemporary debate.

The case law of the Court of Justice of the European Union has played a central role in affirming that non-resident funds, provided they are comparable to domestic funds, cannot be subject to less favorable tax treatment, on pain of violating the fundamental freedoms enshrined in the Treaty on the Functioning of the European Union (TFEU). This approach was reaffirmed in the AllianzGI-Fonds AEVN case (C-545/19), in which the Court held that the taxation applied to foreign funds was discriminatory, as well as in subsequent decisions which have consolidated the criterion of comparability as a parameter for analysis.

The OECD recognizes that, due to the growing internationalization and movement of capital and the in-crease in the number of collective investment schemes, there is a “need to preserve tax neutrality with regard to investment funds, which is a widely recognized principle underpinning the design of international tax rules” (OECD/G20, 2020), seeking to ensure that the use of collective investment vehicles does not impose a greater tax burden than that which would result from direct investment in the underlying assets, and to eliminate distortions between different regimes (OECD, 1999).

The principles applicable to investment funds are tax neutrality, transparency, investor protection and market efficiency. This principle of tax neutrality stems from the OECD’s work on the taxation of cross-border investment, which, according to the report Taxation of Cross-Border Portfolio Investment: Mutual Funds and Possible Tax Distortions, published in 1999, aims to ensure that the tax treatment of an investment through a fund is similar to that of a direct investment in the underlying assets, thereby eliminating potential distortions caused by divergent regimes across jurisdictions.

Alongside neutrality, tax transparency and the exchange of information between tax authorities play a central role in combating tax base erosion. The OECD has sought to strengthen the capacity of tax authorities to access sufficient information on funds and their investors, with a view to ensuring that income earned by collective investment schemes is properly taxed in the investors’ respective countries of residence, without prejudice to tax neutrality mechanisms. In the international context, the OECD also coordinates global principles with domestic taxation mechanisms and double taxation agreements. In this context, “the abolition of discriminatory withholding taxes can considerably reduce effective tax rates on cross-border in-vestments and lessen the bias against domestic investment, although neutrality is not fully achieved in practice” (Dourado et al., 2024, p. 27).

The BEPS initiative reflects precisely this concern to prevent the tax treatment of funds from becoming a means of double non-taxation or the artificial erosion of tax bases, seeking to strike a balance between neutrality, the integrity of the tax system and international cooperation. Beyond the strictly tax-related dimension, the OECD also incorporates principles of governance and accountability for financial market participants. In its report on the role of institutional investors, the OECD states that “a new generation of highly skilled and well-resourced professional shareholders would make conscious use of their rights, promoting good corporate governance in the companies in which they invest” (Kirkpatrick et al., 2011), emphasizing the importance of these actors being viewed not merely as vehicles for capital, but also as active agents in the coordination and oversight of companies.

In the field of responsible business conduct, and within the context of its Guidelines for Multinational Enterprises, the OECD defines due diligence as “the process by which companies can identify, prevent, mitigate and account for the way in which they address their actual and potential adverse impacts”, including environmental, social and integrity aspects linked to investment decisions (Pinho et al., 2023). The implementation of this due diligence by institutional investors must be ongoing and tailored “to the complexity of different business relationships” (Responsible business conduct for institutional investors: Key considerations for due diligence under the OECD Guidelines for Multinational Enterprises, (OECD, 2023a), ranging from listed shares to private equity, and involves risk management that incorporates sustainability and governance practices throughout the entire value chain.

Tax neutrality is closely linked to the free movement of capital, enshrined in Article 63 of the TFEU, which prohibits restrictions on capital movements between Member States and between Member States and third countries, subject to justified exceptions. Tax neutrality seeks to ensure that taxation does not distort markets or favor domestic investments at the expense of cross-border investments, with a view to creating a level playing field between investment vehicles subject to different tax regimes. This means that the tax burden should not penalize investors or investment vehicles solely on the basis of their location or form of organization. The elimination of discriminatory measures, such as withholding taxes applied differently to resident and non-resident funds, “can considerably reduce the effective tax rates on cross-border investments and lessen the bias towards domestic investment” (Dourado et al., 2024), although this does not lead to the full achievement of tax neutrality in a broad economic sense.

The free movement of capital is an essential element of the internal market, allowing capital to be invested where it can yield the highest return, without discriminatory tax barriers. The UCITS Directive (2009/65/EC) seeks to promote a single market for investment funds in which cross-border activity is not unduly hindered by uncoordinated national tax regimes. The aim of allowing funds authorized in one Member State to be distributed throughout the Union without the need for additional authorization reflects a concern not to create barriers to the movement of capital associated with funds. A comparative analysis of fund taxation across different Member States shows that the elimination of discriminatory regimes al-lows national legislation to be brought into line with the fundamental freedoms of the European Union. However, tax neutrality, as a regulatory ideal, faces practical limitations. Even after the elimination of explicit discrimination, structural differences between national regimes remain. Recent studies indicate that ‘the results do not confirm that neutrality has been achieved’ (Müller et al., 2025) in a fully economic sense, highlighting that formal equality does not always translate into substantive equivalence.

Despite the conceptual coherence of these principles of neutrality and the free movement of capital, their application reveals clear limitations: the lack of direct binding force in the OECD guidelines means that implementation depends on the political will of individual states, resulting in a patchwork of solutions. Thus, tax neutrality appears more as a normative objective than as a reality that has been fully achieved at the international level. The practical implementation of tax neutrality varies amongst OECD and European Union Member States. In many countries, funds benefit from tax transparency or quasi-transparency regimes, with taxation shifted to the investor level (OECD, 1999). Nevertheless, systems remain in place that retain some level of taxation at the fund level or on distributed income, creating potential distortions of competition. The diversity of tax models undermines, to some extent, the full realization of the objective of neutrality, particularly in cross-border contexts.

The European investment fund regime continues to be characterized by significant tax fragmentation. The alignment with OECD principles reflects an ongoing effort to build a coherent framework that reconciles market integration, investor protection and tax neutrality. However, structural asymmetries persist, limiting the full realization of these objectives. Whilst seeking to balance regulatory harmonization and tax diversity against a backdrop of increasing financial complexity and global interdependence, the European model faces emerging challenges linked to developments in financial markets: the growth of alternative funds, the integration of environmental, social and governance (ESG) criteria, and the increasing use of digital and cross-border structures all require the existing regulatory frameworks to be continually adapted.

4.2. Legal Framework for Investment Funds in Portugal

Investment funds in Portugal are subject to a set of rules designed to regulate the formation, organization, operation and supervision of collective investment undertakings (CIUs), namely Decree-Law No. 27/2023 of 28 April, which approved the Asset Management Regime (RGA), a cross-cutting piece of legislation establishing the legal framework applicable to collective investment undertakings, Directive 2009/65/EC (UCITS) and Directive 2011/61/EU (AIFMD), which represent an effort towards regulatory harmonization and the integration of European financial markets.

Collective investment undertakings are defined, under Article 4(1) of the RGA, as institutions whose purpose is the collective investment of capital raised from investors, in accordance with a pre-defined investment policy, and which may be of an open-ended or closed-ended nature. These undertakings are subdivided into two main categories: Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs), as provided for in Article 5(2) of the aforementioned regulation.

The supervision of “Organismos de Investimento Coletivo” (OICs) is entrusted to the Portuguese Securities Market Commission (CMVM), an independent administrative authority responsible for the authorization, regulation and supervision of these entities, as well as for the exercise of sanctioning powers, in accordance with the relevant legal framework.

OICs may take the form of either a contractual or a corporate entity, reflecting a legislative choice aimed at structural flexibility regarding the type of legal vehicle available to investment funds. In the contractual form, the entity takes the form of an autonomous pool of assets without legal personality, owned by a number of participants and managed by an authorized management company. This autonomy of assets is reflected in the separation between the fund’s assets and those of the management company and the custodian, ensuring that the assets are used exclusively to meet the fund’s own obligations. In the corporate form, OICs take the form of investment companies, specifically open-ended investment companies (SICAVs), which have legal personalities and are governed both by the RGA and by the legal regime governing commercial companies. The variability of the capital is a distinctive feature, allowing the fund to adapt dynamically to subscriptions and redemptions made by investors.

In both types of schemes, the principles of tax neutrality, limited investor liability and supervision by the CMVM apply.

From a tax perspective, the regime set out in Article 22 of the Tax Benefits Statute is particularly relevant; this establishes a model of tax neutrality at the level of the vehicle, shifting the tax burden to the investors. Under this provision, OICs are subject to corporation tax (IRC), except for certain types of income which do not form part of taxable profit, namely investment income, property income and capital gains, as set out in paragraph 3 of the aforementioned article, thereby avoiding economic double taxation. In other words, investment income, property income and capital gains realized by the fund itself are, as a rule, excluded from corporate income tax. Taxation falls entirely on the investor at the time they receive distributed income or redeem and sell their units. For an individual resident in Portugal, this means a 28 per cent withholding tax on distributed income, a rate which rises to 35 per cent if the fund is domiciled in a country, territory or region included on the list of preferential tax regimes approved by Ministerial Order No. 150/2004. OICs also benefit from exemption from municipal and state surcharges.

Taxation varies depending on the nature of the income and the individual’s residency status. For individual’s resident in Portugal, income is taxed as capital income. Non-residents are, as a rule, exempt from personal income tax (IRS) or corporation tax (IRC), provided they do not have a permanent establishment in Portuguese territory and are not domiciled in jurisdictions with preferential tax regimes. For investors liable for corporation tax (IRC), the income forms part of taxable profit and is not subject to withholding tax; the tax paid by the fund acts as a payment on account.

In summary, the legal and tax regime for investment funds in Portugal represents a well-established regulatory framework, harmonized between domestic law and European Union law, characterized by the structural flexibility of investment vehicles, the neutrality of the tax regime and its economic efficiency, de-signed to ensure a certain level of competitiveness in the national financial market.

4.3. Legal Framework for Investment Funds in Luxembourg

From a tax perspective, Luxembourg does not apply a single tax treatment to all investment fund structures. The applicable treatment depends on the legal form and regulatory regime of the vehicle. UCITS established under the Law of 17 December 2010 are generally not subject to corporate income tax or municipal business tax on their investment income and gains, but are subject to the taxe d’abonnement provided for in Article 174 of that Law. This levy is generally calculated quarterly on the fund’s net asset value at a rate of 0.05%, with a reduced rate of 0.01% applying to certain eligible funds. The tax is therefore calculated by reference to the assets of the vehicle rather than directly on its investment income or capital gains.

The treatment of AIFs requires a more differentiated analysis. RAIFs, introduced by the Law of 23 July 2016, are subject to specific tax rules that depend on their legal and structural form. As a general rule, a RAIFs established under the relevant regime is subject to the taxe d’abonnement, while specific exemptions and reduced rates may apply to certain qualifying structures and investments. SIFs, established under the Law of 13 February 2007, are likewise subject to a specific tax regime, including the applicable taxe d’abonnement and statutory exemptions. Other AIFs structures, including SICARs, may be governed by distinct tax provisions according to their legal form and investment strategy. Consequently, the tax treatment of Luxembourg AIFs cannot be reduced to a single vehicle-level neutrality model.

The comparison therefore identifies a common feature across several Luxembourg fund structures—namely, the absence or limited incidence of ordinary corporate taxation at vehicle level—but not a uniform tax regime. The taxe d’abonnement represents a specific form of vehicle-level taxation for relevant structures, while the taxation of investors depends on their residence, legal status, the nature of the income and the applicable domestic and treaty provisions. Fund-level neutrality should therefore be understood in Luxembourg as a feature of particular legal and regulatory structures rather than as an identical characteristic of all investment funds.

With the transposition of Directive 2011/61/EU (AIFMD) through the Law of 12 July 2013, the prudential framework applicable to alternative investment fund managers was strengthened, introducing harmonized mechanisms for authorization, supervision and systemic risk control. The supervision and enforcement of this regulatory framework are ensured by the Commission de Surveillance du Secteur Financier (CSSF), whose role is crucial in guaranteeing the integrity, transparency and stability of the financial system.

In terms of legal forms, the Luxembourg legal system exhibits a remarkable diversity of types, distinguishing between contractual structures, such as the Fonds Commun de Placement (FCP)—which lacks legal personality and is based on a separate fund—, and corporate structures, namely the Société d’Investissement à Capital Variable (SICAV) and the Société d’Investissement à Capital Fixe (SICAF), both of which have legal personality and are subject, to a greater or lesser extent, to company law.

In addition to these, there are specialized vehicles such as the Société d’Investissement en Capital à Risque (SICAR), which focuses on venture capital investments, as well as RAIFs, whose main distinctive feature is that they are exempt from direct prior authorization by the supervisory authority, provided they are managed by duly authorized entities. This structural diversity provides different legal forms that can accommodate distinct investment strategies, asset classes and investor requirements.

From a comparative perspective, the Luxembourg tax framework combines limited vehicle-level taxation with specific tax mechanisms that vary according to the legal form and regulatory status of the fund. For several fund structures, the taxe d’abonnement replaces ordinary taxation of investment income and gains at vehicle level, while other structures may be subject to distinct statutory provisions. The resulting framework therefore provides mechanisms that can limit vehicle-level taxation, but their application depends on the specific fund structure.

These mechanisms can reduce the incidence of taxation at vehicle level, while taxation at investor level remains dependent on the investor’s residence, legal status, the nature of the income and the applicable domestic and treaty provisions.

In view of the above, the Luxembourg framework can be characterized by the coexistence of EU regulatory harmonization, specialized national regimes, a diversified range of legal vehicles and differentiated vehicle-level tax mechanisms.

Taken together, these features provide a diversified legal and regulatory framework for the establishment, management and cross-border distribution of investment funds.

4.4. The Legal Framework for Investment Funds in Ireland

The legal framework for investment funds in Ireland stems, fundamentally, from the country’s institutional stability and its integration into European Union law. Ireland stands out as one of the leading jurisdictions for the domicile of UCITS, which is largely due to the combination of specialized national legislation and the transposition of the key European directives governing the sector, namely Directive 2009/65/EC (UCITS) and Directive 2011/61/EU (AIFMD). This process has been accompanied by consistent and rigorous oversight by the Central Bank of Ireland, which plays a central role in the authorization, supervision and prudential regulation of investment funds.

From a regulatory perspective, the Irish legal framework is based on the Investment Funds, Companies and Miscellaneous Provisions Act 2005, supplemented by regulations issued by the Central Bank. This framework sets out a series of stringent requirements regarding the formation, operation, governance and protection of investors, whilst ensuring compliance with European standards.

One of the distinctive features of the Irish system lies in the diversity of legal vehicles available. Among the main instruments are corporate vehicles, such as investment companies and Irish Collective As-set-management Vehicles (ICAVs), as well as contractual vehicles, such as unit trusts and common contractual funds (CCFs), to which are added hybrid structures typical of alternative investment, such as in-vestment limited partnerships (ILPs). This coexistence allows the legal vehicle to be tailored to the specific characteristics of investors, the underlying assets and management strategies.

Among the various instruments, the ICAV is of particular significance, being a vehicle created specifically for the funding industry, separate from the general regime of company law. Its flexible structure makes it particularly attractive to international institutional investors, notably due to its compatibility with certain foreign tax regimes. On the other hand, vehicles such as CCFs and ILPs are distinguished by the fact that they adopt tax transparency regimes, in which income is attributed directly to investors, thereby enhancing the tax efficiency and neutrality of the system.

From a tax perspective, the Irish model is based on the principle of neutrality regarding investment funds, as enshrined in the Taxes Consolidation Act 1997. As a general rule, UCITS benefit from an effective tax rate of 0 per cent on the income and capital gains they generate, with taxation being shifted to the investors. This taxation occurs, essentially, at the time the income is realized, through the exit tax mechanism, which applies to distributions, redemptions or other chargeable events. In addition, the system provides for a deferred taxation mechanism (deemed disposal), which imposes taxation on accumulated gains at the end of a specified period, thereby preventing the indefinite deferral of the tax liability.

Taxation varies according to the investor’s status, with a clear distinction being made between residents and non-residents, as well as between individuals and legal entities. Non-resident investors benefit from an exemption from taxation in Ireland, provided they do not have a permanent establishment within the territory, with income being taxed exclusively in their State of residence.

This aspect is one of the main factors contributing to the international appeal of the Irish jurisdiction. In turn, the tax transparency regimes applicable to CCFs and ILPs help to avoid double taxation and facilitate access to the benefits provided for in double taxation agreements, which are particularly relevant to institutional investors.

Despite its obvious advantages, the Irish model faces challenges arising from developments in the international tax landscape, in particular the increasing harmonization promoted by the European Union and the OECD, notably through initiatives such as the Anti-Tax Avoidance Directive and the Pillar Two rules. These measures aim to limit tax competition between jurisdictions and introduce a minimum effective level of taxation, which may impact on the competitiveness of models traditionally based on favorable tax regimes. In this context, the sustainability of Ireland’s position will depend on its ability to strengthen other factors of competitiveness, such as the quality of regulation, legal certainty and specialized human capital.

In summary, the legal framework for investment funds in Ireland is based on a combination of prescriptive regulation, structural flexibility and tax efficiency. The diversity of available vehicles contributes to Ire-land’s standing as one of Europe’s leading asset management centers. This model highlights the importance of an adaptable legal system, integrated within a supranational regulatory framework, capable of attracting international investment and promoting the sustained development of financial markets.

4.5. Cross-Country Comparative Findings

A comparison of the three tax regimes reveals different approaches to taxation: taxing the fund as little as possible and shifting the tax burden to the investor.

The legal regimes applicable to investment funds in Portugal, Luxembourg and Ireland highlight the existence of three distinct regulatory models, albeit based on a common framework arising from integration into European Union law, namely through Directive 2009/65/EC (UCITS) and Directive 2011/61/EU (AIFMD). These directives represent an effort at regulatory harmonization in the field of undertakings for collective investment (UCIs), aimed at investor protection and the stability of financial markets (Ferran, 2004).

Notwithstanding this common basis, the solutions adopted by each legal system reflect different policy choices and strategies for positioning themselves in the international asset management market. In Portugal, the regulatory framework is set out in the Asset Management Regime (RGA), approved by Decree-Law No. 27/2023, which enshrines an integrated approach aligned with European Union law, with a view to consolidation and investor protection (Leitão, 2021).

In contrast, Luxembourg has a highly developed and specialized legal framework, based on the Act of 17 December 2010 and supplemented by specific regimes such as Specialised Investment Funds (SIFs) and Reserved Alternative Investment Funds (RAIFs). This legislative specialization is often cited as one of the key factors behind the country’s leadership in the investment fund sector (Achleitner & Kaserer, 2005).

Ireland, on the other hand, adopts a more flexible regulatory model, based on the Investment Funds, Companies and Miscellaneous Provisions Act 2005 and the regulations of the Central Bank of Ireland, allowing for continuous adaptation to the demands of the global market (Whelan, 2017).

At the institutional level, the actions of the supervisory authorities play a crucial role in establishing the credibility of these jurisdictions. The Portuguese Securities Market Commission (CMVM) is responsible for authorization, supervision and oversight, adopting a prudential approach that prioritizes the stability of the financial system (Comissão do Mercado de Valores Mobiliários, 2023). In Luxembourg, the Commission de Surveillance du Secteur Financier (CSSF) combines a degree of operational pragmatism with a commitment to enabling the sector’s development without compromising legal certainty (Commission de Surveillance du Secteur Financier, 2023). For its part, the Central Bank of Ireland is widely recognized for the efficiency and predictability of its processes, which is a key factor in the attractiveness of the Irish jurisdiction (Central Bank of Ireland, 2022).

One of the main differences between the three regimes lies in the variety of legal forms available. Portugal has a relatively limited structure, centered on contractual funds and investment companies, such as SICAVs. In contrast, Luxembourg offers a wide range of vehicles, including FCPs, SICAVs, SICAFs, SIFs, RAIFs and SICARs, which allows for a high degree of flexibility in structuring investments (Nikkanen, 2025). Ireland offers an intermediate solution, standing out for its legal innovation, notably through the Irish Collective Asset-management Vehicle (ICAV), designed specifically for the fund industry (Whelan, 2017).

In the tax sphere, the three legal systems enshrine the principle of fund-level neutrality, albeit to varying degrees. In Portugal, Article 22 of the EBF establishes a regime of partial neutrality, excluding certain in-come from the tax base, but nevertheless retains a certain degree of regulatory complexity (Basto, 2004). Luxembourg adopts a particularly favorable model, characterized by the absence of any significant direct taxation, replaced by the ‘taxe d’abonnement’, which has a limited economic impact (KPMG, 2023). Ireland, for its part, applies an effective rate of 0 per cent at fund level, supplemented by mechanisms such as the exit tax and deemed disposal, ensuring taxation at investor level (Daly, 2008).

The tax attractiveness of these jurisdictions, particularly regarding non-resident investors, is a key factor in their competitiveness. As Moloney points out, “the success of fund domiciles such as Luxembourg and Ireland lies not only in regulatory compliance but in the ability to offer efficient tax-neutral structures to international investors” (Moloney, 2023).

A comparative analysis of international competitiveness reveals a clear distinction between the three countries. Luxembourg holds a leading global position, based on a combination of regulatory specialization, structural diversity and tax efficiency. Ireland stands out as a highly competitive jurisdiction, particularly in the UCITS segment and amongst institutional investors, benefiting from a modern and innovative regulatory framework (Whelan, 2017). Portugal, whilst legally sound and aligned with European law, faces limitations arising from its smaller market scale and limited diversity of investment vehicles (Leitão, 2021).

In conclusion, the analysis carried out demonstrates that, despite European harmonization, significant differences remain between national regimes, reflecting distinct competitiveness strategies. The Portuguese model is characterized by balance and regulatory consistency but shows a lower capacity to attract international investment. Luxembourg stands out as a highly sophisticated system geared towards global leadership, whilst Ireland distinguishes itself through its efficiency, innovation and strong integration into inter-national markets. In this context, the competitiveness of jurisdictions in the investment fund sector depends not only on regulatory compliance, but also on the ability to offer flexible, tax-efficient structures tailored to the demands of a globalized market.

A comparative analysis of the legal frameworks governing investment funds in Portugal, Luxembourg and Ireland reveals that, despite the harmonization imposed by European Union law, significant structural differences remain, reflecting distinct political, economic and strategic choices.

Although the three legal systems are aligned with the UCITS and AIFMD Directives, the extent to which they utilize the national margin for maneuver differs significantly. Portugal tends to adopt a more conservative approach that strictly complies with the EU framework, prioritizing investor protection and regulatory stability. By contrast, Luxembourg and Ireland more actively exploit the possibilities for legal engineering within the European framework, creating specific regimes (such as RAIFs or ICAV) that maximize international competitiveness.

Although all three systems adopt the principle of tax neutrality, there are varying degrees of implementation and tax efficiency. Luxembourg and Ireland have clearer, more predictable and internationally recognized systems. Luxembourg provides a high degree of fund-level tax neutrality, although the subscription tax represents a residual vehicle-level tax mechanism and has a more sophisticated and flexible system, which is highly attractive globally. Ireland provides an effective 0% fund-level tax rate on the relevant income and gains, while taxation is generally shifted to the investor level through mechanisms including exit taxation and deemed disposal and has an innovative and efficient model, which is particularly attractive to institutional investors.

Portugal presents a balanced and legally sound model, but with less international appeal due to limited flexibility and perceived lower efficiency. The Portuguese system, whilst functional, is less transparent and potentially less efficient, and may give rise to additional compliance costs.

Tax simplicity and predictability are frequently cited by practitioners as decisive factors for international investors; based on the comparative criteria applied in this study (Table 1), Luxembourg and Ireland present fewer layers of vehicle-level taxation than Portugal, which may support—though does not by itself demonstrate—their comparative attractiveness. Portugal demonstrates a lower capacity for legislative innovation, which undermines its attractiveness compared to jurisdictions that use the law as a competitive tool.

Luxembourg clearly stands out for its legal sophistication and diversity of vehicles, providing a broad range of vehicles that can accommodate different investment strategies and investor profiles, combining structural diversity and tax efficiency, although it is subject to international regulatory pressures.

Ireland emerges as an intermediate solution, with a less dense legislative framework, yet modern and innovative (ICAV, CCF, ILP), and with strong operational efficiency and high integration into international markets, positioning itself as a direct competitor to Luxembourg.

In contrast, Portugal, for its part, offers a more limited range of options. Portugal’s structural limitations constitute a competitive disadvantage, particularly in a global market where legal customization is essential.

5. Conclusions

The analysis shows that the European investment fund regime is characterized by a high degree of prudential harmonization, in contrast to the fiscal fragmentation that persists among Member States. By applying a common comparison matrix to Portugal, Luxembourg and Ireland, this study demonstrates that the common EU regulatory framework coexists with materially different national approaches to vehicle-level and investor-level taxation. The comparison identifies differences in the mechanisms used to achieve or approximate tax neutrality, ranging from Portugal’s partial exclusion of specified categories of income from the fund’s taxable profit, to Luxembourg’s taxe d’abonnement applicable to relevant fund structures, and Ireland’s generally 0% taxation of qualifying investment funds at vehicle level. These findings indicate that regulatory harmonization under EU law has not been accompanied by equivalent convergence in the technical design of national tax rules.

An important finding concerns the structural asymmetry between the UCITS and AIFMD frameworks. The UCITS Directive establishes a relatively comprehensive product-level regulatory regime, regulating the fund itself and addressing matters such as eligible investments, management, depositary arrangements, investor protection and marketing conditions. By contrast, the AIFMD is primarily a manager-focused regime, establishing requirements for the authorization, organization, conduct and supervision of Alternative Investment Fund Managers rather than creating a fully harmonized product-level regime for AIFs. Consequently, substantial aspects of AIFs product regulation remain dependent on national law and on the specific characteristics of individual AIFs structures. This distinction is particularly relevant to the interpretation of the comparative findings, as AIFs cannot be treated as a homogeneous regulatory or tax category. Differences in investment strategies, eligible assets, liquidity, leverage, investor eligibility and legal form must therefore be assessed according to the specific type of AIFs and the applicable national framework.

The comparative analysis further demonstrates that the three jurisdictions operate within the same European prudential architecture while retaining significant discretion in the design of their national investment fund regimes. Portugal provides contractual and corporate investment fund structures within the framework established by the Asset Management Regime. Luxembourg offers a broader range of specialized vehicles, including FCPs, SICAVs, SICAFs, SIFs, RAIFs and SICARs, each subject to its respective legal and tax provisions. Ireland provides a diversified set of corporate and contractual structures, including ICAVs, investment companies, unit trusts, CCFs and ILPs. These differences demonstrate that European regulatory harmonization does not eliminate national variation in the legal forms through which investment funds may be established and operated.

The tax comparison reveals a similar pattern. The three jurisdictions employ different legal mechanisms to limit or relocate taxation at fund level, but these mechanisms should not be regarded as equivalent forms of tax neutrality. In Portugal, Article 22 of the Estatuto dos Benefícios Fiscais excludes specified categories of investment income, property income and capital gains from the fund’s taxable profit, while taxation may arise at investor level. In Luxembourg, relevant fund structures are generally subject to the taxe d’abonnement rather than ordinary taxation of investment income and gains, although the applicable treatment varies according to the legal form and regulatory status of the vehicle. In Ireland, qualifying investment funds are generally subject to a 0% fund-level tax rate on relevant investment income and gains, with taxation occurring through investor-level mechanisms such as exit tax and, where applicable, deemed disposal. The comparison therefore demonstrates that formal adherence to the objective of tax neutrality does not imply identical tax mechanisms or equivalent investor-level outcomes.

The treatment of non-resident investors provides an additional source of divergence. Portugal, Luxembourg and Ireland all provide exemptions or other forms of relief for qualifying non-resident investors, but the conditions and mechanisms applicable to such investors differ across jurisdictions. Residence, permanent-establishment status, investor classification, the nature of the income, withholding mechanisms and applicable domestic and treaty provisions may affect the final tax treatment. Accordingly, the results support a distinction between formal tax neutrality at vehicle level and the effective tax consequences experienced by investors in different jurisdictions.

From a broader European perspective, the findings indicate that prudential harmonization has progressed further than tax coordination. The UCITS and AIFMD frameworks facilitate a common regulatory environment for cross-border fund activity, but they do not establish a uniform system of investment fund taxation. Moreover, the different regulatory architecture of the two directives means that the scope for national variation is particularly relevant in the case of AIFs, where product-level characteristics remain more dependent on national law and the specific structure of the fund. The coexistence of common prudential requirements with divergent national tax mechanisms therefore represents an important structural feature of the European investment fund market.

In tax terms, the principle of neutrality promoted by the OECD provides a relevant normative benchmark for interpreting these differences. The comparison nevertheless shows that neutrality is implemented through different legal mechanisms. Vehicle-level tax liability, investor-level taxation, withholding rules, treaty access and mechanisms such as exit taxation or deemed disposal vary according to the fund structure and the investor’s residence and status. Formal adherence to tax neutrality therefore does not necessarily produce equivalent investor-level tax outcomes across jurisdictions. Tax neutrality should consequently be understood as a normative objective whose practical implementation remains substantially dependent on national tax design.

The case law of the Court of Justice of the European Union has contributed to limiting explicit discrimination against cross-border investment by reinforcing the application of the fundamental freedoms, particularly the free movement of capital under Article 63 TFEU. However, the elimination of discriminatory treatment does not necessarily eliminate all economic differences between national regimes. The comparative findings suggest that the removal of formal discrimination may coexist with structural differences in vehicle-level taxation, investor taxation and reporting requirements. Thus, CJEU case law contributes to constraining discriminatory national measures, but does not by itself produce full tax convergence across Member States.

The findings also have practical implications. For fund managers, differences in legal forms and tax mechanisms may affect decisions concerning fund structuring and domicile. For tax authorities, divergent national rules increase the importance of cross-border information exchange and coordinated tax reporting. For investors, particularly those investing across jurisdictions, differences in investor-level taxation, withholding mechanisms and the availability of treaty benefits may affect the ultimate tax consequences of investment through different vehicles. These implications do not establish that one jurisdiction is universally more efficient or attractive than another; rather, they demonstrate that the legal and tax consequences of fund structures depend on the interaction between the vehicle, the investor and the relevant national rules.

The consolidation of a more integrated internal market for investment funds therefore depends not only on the prudential harmonization already achieved, but also on greater coordination of tax and reporting frameworks. The objective should not necessarily be to impose identical tax regimes across Member States, but rather to reduce unjustified disparities, improve transparency and promote greater consistency in the treatment of cross-border investment funds. Greater coordination of financial disclosure and tax reporting requirements, continued cooperation between tax authorities within international initiatives such as the BEPS project, and further consideration of the interaction between EU fund regulation and national taxation could contribute to narrowing the gap between formal tax neutrality and economically comparable outcomes.

This study has several limitations. First, the comparative analysis is confined to three EU jurisdictions and therefore does not capture the full diversity of national investment fund and tax regimes within the European Union. Second, the analysis is based primarily on legal and policy materials available as of the stated cut-off date and does not incorporate empirical market data concerning investor behaviour, fund flows or the effective tax burdens experienced by different categories of investors. Third, although the study distinguishes between the product-level regulatory architecture of UCITS and the manager-focused architecture of the AIFMD, it does not examine in detail the tax treatment of each individual AIFs subtype, such as hedge funds, private equity, property funds and private credit vehicles. Fourth, the analysis identifies legally observable differences between the three jurisdictions but does not establish causal relationships between particular regulatory or tax features and fund domicile decisions or market outcomes.

Future research could extend the comparative framework to additional EU jurisdictions and incorporate empirical evidence on cross-border fund flows, fund domicile decisions and effective investor-level tax burdens. Further research could also examine individual AIFs subtypes separately, compare the interaction between fund taxation and accounting treatment under IFRS and national GAAP, and assess how emerging developments in financial digitalization, ESG-related investment strategies and international minimum taxation may affect the regulatory and tax architecture of European investment funds.

Overall, the study concludes that the European investment fund framework combines substantial prudential harmonization with persistent national fiscal diversity. The UCITS Directive and AIFMD provide an important common regulatory foundation, but their different regulatory architectures—product-focused in the case of UCITS and primarily manager-focused in the case of AIFMD—mean that the degree and nature of national regulatory variation differ across fund categories. At the same time, the comparison of Portugal, Luxembourg and Ireland demonstrates that tax neutrality is pursued through materially different national mechanisms. The principal challenge for the further development of the European investment fund market is therefore not the complete elimination of national diversity, but the achievement of greater coherence between prudential harmonization, national tax rules and cross-border tax coordination.