The UK's revenue agency, HM Revenue and Customs (HMRC), has released full draft proposals of government plans to amend the existing equalisation provisions included in offshore fund regulation.
On December 2010, HMRC published its initial draft legislative material, accounting for the amendment of The Offshore Funds (Tax) Regulations 2009. The changes were to account for the effect of equalisation arrangements in the calculation of responsible income where an offshore reporting fund operates equalisation arrangements. It was also intended that the transitional provisions would allow reporting funds to have the option of operating the new rules for previous reporting periods, where a report had not already been issued. Further to these statements, HMRC announced on February 28, the publication, for industry comment, of the full draft of the proposed amendments.
In addition to the changes covered by the December publication, HMRC's latest release also includes further alterations. For reporting funds, they are as follows:
For all Offshore Funds, the amendments are:
On December 2010, HMRC published its initial draft legislative material, accounting for the amendment of The Offshore Funds (Tax) Regulations 2009. The changes were to account for the effect of equalisation arrangements in the calculation of responsible income where an offshore reporting fund operates equalisation arrangements. It was also intended that the transitional provisions would allow reporting funds to have the option of operating the new rules for previous reporting periods, where a report had not already been issued. Further to these statements, HMRC announced on February 28, the publication, for industry comment, of the full draft of the proposed amendments.
In addition to the changes covered by the December publication, HMRC's latest release also includes further alterations. For reporting funds, they are as follows:
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- 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, and
- Clarification of scope of reporting requirements (to "relevant" investors).
For all Offshore Funds, the amendments are:
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- 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, and
- 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 government intends to make the regulations by late April, in order for them to come into force before the end of May.
