Draft amendments to the Offshore Funds (Tax) Regulations 2009

This page includes announcements on draft amendments to the Offshore Funds (Tax) Regulations 2009 made by HMRC Revenue & Customs (HMRC) on 28 February 2011 and 20 December 2010.

28 February 2011

Further to the announcement on 20 December 2010 (of proposals to make amendments to the Offshore Funds (Tax) Regulations 2009 and the publication of the draft legislative material), HMRC is now publishing, for industry comment, a full draft of proposed amendments to The Offshore Funds (Tax) Regulations 2009 (SI 2009/3001 as amended).

As well as the rules for funds operating equalisation which were published on 20 December 2010, this draft incorporates a number of other proposed changes, which are briefly described below:

Reporting funds

  • Adjustments to the calculation of reported income per unit where funds do not operate equalisation (these adjustments are intended to eliminate the possibility of a ‘last man standing’ problem). This part of the regulations includes transitional provisions which will apply the new rules to reports made after they come into force, together with an election not to apply the new rules in respect of any reporting period already ended where the report remains to be made.
  • An amendment for offshore funds similar to UK qualified investor schemes considered to be ‘equivalent to UK authorised investment funds’ (so that those funds can, if they otherwise qualify, access the trading and investment ‘white list’, with the effect that the rules relating to transactions considered not to be trading can be applied in relation to the computation of reportable income).
  • Alterations to the Genuine Diversity of Ownership rule to allow it to apply at sub-fund level (and not just share class) and to permit the investors in a feeder fund to be considered when assessing a Master fund.
  • New rules for calculating the reportable income of a transparent reporting fund.
  • A provision to give more certainty to the computation of reportable income in an index tracking fund.
  • Time limits for application and withdrawal extended.
  • Clarification of scope of reporting requirements (to ‘relevant’ investors).

All Offshore Funds

  • Where non-reporting funds are invested almost entirely in unlisted trading companies and gains arise on the disposal of such non-reporting funds then there is an exception to the charge to tax on an offshore income gain.
  • Fiscally transparent funds will be outside the scope of legislation which treats holdings in certain funds as loan relationships (for corporate investors). This will have the effect that corporate holders will ‘look through’ all transparent offshore funds for tax purposes including those that are mainly invested in interest bearing assets. The loan relationships rules will therefore apply directly to the underlying assets where relevant.

The amendments described in the announcement of 20 December 2010 (see below) are also incorporated as some are minor drafting amendments, corrections and consequential points.

Read the draft Regulations (PDF 167K)

Any questions or comments on this draft should be made, as soon as possible, to:

John Buckeridge
CT&VAT, 3rd Floor
100 Parliament Street
London SW1A 2BQ
Telephone: 020 7147 2560
Email: John Buckeridge

Whilst no specific deadline is given, interested parties should note that it is the Government’s intention to make the regulations by late April so that they will come into force before the end of May.

Top

20 December 2010

Following the statement issued on 30 November 2010, HM Revenue & Customs has now published draft legislative material to show how the government intends to amend the provision made for equalisation in The Offshore Funds (Tax) Regulations 2009 (SI 2009/3001). The changes account for the effect of equalisation arrangements in the calculation of reportable income where an offshore reporting fund operates equalisation arrangements.

By introducing these amendments, the Government intends to provide appropriate certainty for industry. This is in line with the Government’s commitment to improve tax policy making and the UK tax system’s reputation for predictability, stability and simplicity.

It is intended that the transitional provisions, to be provided when these changes are enacted in spring 2011, will allow reporting funds to have the option of operating the new rules for previous reporting periods where a report has not already been issued.

Further changes to cater for reporting funds which do not operate equalisation arrangements will be included in the material to be published early in 2011. This material will also address other issues.

The draft material published today also incorporates the following minor amendments to the regulations as follows:

  • An amendment to provide for continuity of reported income in a case where section 106A of the Taxation of Chargeable Gains Act 1992 applies to a disposal and acquisition covering the end of a reporting period.
  • Changes to the transitional rules in Schedule 1 to the regulations which widen slightly the ability to apply for distributing fund status in the transitional periods and ensure that the regulations cater for earlier periods. There is also a correction to the end date for the transitional period as previously announced.

Top