HMRC Consults on Tax Residence of Non-UCITS Funds Managed by UK Managers

by Dechert LLP
Contact

HMRC has released a series of consultations regarding financial services taxation. The proposed measures are in line with the Government’s “UK investment management strategy”, a commitment announced in the 2013 Budget to protect the UK’s position as Europe’s leading centre for fund management. The most significant consultation for the alternative asset management industry proposes helpful amendments to give certain offshore non-UCITS funds (or “alternative investment funds” (AIFs)) additional comfort that they will not be treated as UK tax resident.

Background

The consultation regarding the residence of AIFs is designed to provide certainty that locating the management of certain offshore non-UCITS funds in the UK will not lead to a risk of such AIFs being treated as UK tax resident. Non-UK UCITS funds managed from within the UK already benefit from this certainty under section 363A of the Taxation (International and Other Provisions) Act 2010 (“Section 363A”). If implemented, the proposed extension should reduce the administrative burden of ensuring central management and control (CMC) is not carried out in the UK.

Section 363A TIOPA was introduced in the Finance Act 2011 in response to the “management company passport” introduced by the UCITS IV directive. The “passport” allows a fund authorised under that directive to be managed by a manager authorised in any other Member State. To encourage the competitiveness of the UK’s fund management industry, Section 363A provides certainty that non-UK UCITS funds authorised and treated as resident in another Member State but managed from the UK will not be treated as resident in the UK for tax purposes.

Where CMC takes place is one of the principal tests used to determine UK residence for corporation tax purposes. Broadly, CMC is exercised where the highest level of control of the business of a company is to be found. This is generally at board level although only in circumstances where CMC is actually exercised by the board of the fund. Currently, UK fund managers of non-UCITS funds must ensure that CMC takes place outside the UK to prevent the fund being resident in the UK for tax purposes.

The alternative investment management directive imposes new oversight obligations on a manager of an AIF under the Directive (an AIFM). These obligations include important issues such as having an involvement in approving and implementing the investment strategy, appointing the prime broker and setting maximum leverage limits for the AIF. Consequently, representations were made to HMRC with a view to introducing a similar relaxation of the CMC residence rules for such AIFs.

Proposals

As part of its commitment to “the UK investment management strategy”, the Government is now consulting on proposals to widen the scope of Section 363A to encompass certain offshore non-UCITS funds particularly given the new AIFM oversight obligations that are being introduced as part of the AIFM Directive.

The Government’s proposal is that Section 363A should be extended to include those entities that are:

  • AIFs which are within the definition of an offshore fund for UK tax purposes, and
  • which have a UK-based manager that is either an alternative investment fund manager authorised by the Financial Conduct Authority or a branch of such a manager authorised in another Member State.

The extended provision, if introduced, should give UK managers comfort that AIFs falling within the revised provision will not be treated as being UK tax resident. This should reduce some of the administrative pressure involved in policing measures currently taken in relation to CMC (essentially relating to the key decision making processes). However, it is worth noting that such measures may still need to be maintained for other reasons, such as to ensure that the relevant funds remain resident in their current jurisdiction (for treaty purposes or otherwise).

The Consultation

The consultation process will run until 14 October 2013. If the scope of the legislation is to be extended, the change will be introduced in the Finance Bill 2014.

Links

Links to the consultations papers are set out below.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP
Contact
more
less

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.