(This note is not part of the Regulations)
These Regulations amend the Offshore Funds (Tax) Regulations 2009 (“the principal Regulations”) which make provision for the tax treatment of participants in offshore funds.
These Regulations are in six Parts, with Part 2 being divided into Chapters.
Part 1 contains introductory provisions. Regulation 1 deals with citation, commencement and effect; regulation 2 introduces the amendments; regulation 3 sets out the structure of these Regulations and contains interpretation provisions.
Part 2 concerns equalisation arrangements.
Chapter 1 of Part 2 (consisting of regulations 4 to 13) makes amendments to the principal Regulations in relation to equalisation arrangements. Regulation 4 introduces the provisions. Regulation 5 inserts regulation 50A which defines the terms “equalisation arrangements”, “full equalisation arrangements” and “equalisation amount”. Regulation 6 amends regulation 53 to make provisions for statements to be made by an offshore fund in relation to equalisation arrangements on making an application to become a reporting fund. Regulation 7 amends regulation 55 to insert a reference to Chapter 6A (which is inserted into Part 3 of the principal regulations by these Regulations) and to provide for a case where Her Majesty’s Revenue and Customs (“HMRC”) must not accept an application from an offshore fund to become a reporting fund not operating equalisation arrangements.
Regulation 8 inserts Chapter 2A into Part 3 of the principal Regulations. The inserted regulations 56A and 56B make provision for an offshore fund to amend a statement relating to equalisation made in its application to become a reporting fund and for an appeal against a refusal of such an application.
Regulation 9 substitutes regulation 72 to make provision for the adjustments to the reportable income of a fund which operates equalisation arrangements on the acquisition or disposal of an interest in the fund. Regulation 10 amends regulation 92 to make provision for the information to be provided in the report to participants in relation to the equalisation arrangements operated by the fund and to provide how amounts to be reported are to be determined.
Regulation 11 inserts regulations 92A, 92B and 92C which provide how the reported income per unit of the fund is to be calculated in the case of funds which do not operate equalisation arrangements. Regulation 12 inserts regulation 94A to make provision for the treatment of an equalisation amount where a participant has acquired an interest in a fund which operates full equalisation arrangements. Regulation 13 amends regulation 99 to reduce the acquisition cost of an interest where the amount of an actual distribution made to the participant has been treated as reduced by an equalisation amount.
Chapter 2 of Part 2 (consisting of regulations 14 to 17) makes transitional provisions in relation to equalisation arrangements. Regulation 14 introduces the provisions. Regulation 15 provides that an existing reporting fund must give the statements relating to equalisation arrangements required by the amendments made to regulation 53(1) by these Regulations; the fund will then be treated as having operated equalisation arrangements, full equalisation arrangements or as not operating equalisation arrangements, as the case may be, in accordance with the statements given, from the time that the fund first became a reporting fund.
Regulation 16 makes provision for special cases: it allows a fund to elect that the amendments made by Part 2 should not apply in relation to a reporting period which has ended before the Regulations come into force and makes provision for cases where no statement is given under regulation 15 or HMRC do not accept the statement is reasonable. Regulation 17 provides for an appeal against a refusal by HMRC to accept a statement.
Part 3 (consisting of regulations 18 to 20) makes provision for a new exception from the charge to tax under regulation 17 of the principal Regulations in relation to the disposal of interests in offshore funds investing in certain unlisted trading companies. Regulation 18 introduces the Part and regulation 19 inserts regulations 31A to 31C into the principal Regulations to provide for the exception. Regulation 20 amends regulation 81 to extend the meaning of investment transaction so that it will apply for the purposes of these provisions.
Part 4 (consisting of regulations 21 to 27) makes provision in relation to transparent funds. Regulation 21 introduces the amendments. Regulation 22 amends regulation 49 to insert a reference to Chapter 6A (inserted into Part 3 of the principal Regulations by these Regulations) and disapply Chapters 4 to 6 of Part 3 of the principal regulations in relation to reporting funds which are transparent funds. Regulation 23 makes consequential amendments to regulation 58.
Regulation 24 inserts Chapter 6A which contains regulations 89A to 89E which explain how reportable income is to be computed in the case of reporting funds which are transparent funds. Inserted regulation 89A contains an introduction and a definition of “transparent reporting fund”. Inserted regulation 89B requires transparent reporting funds to provide a computation of reportable income for a period of account and provides a general rule to identify the sums comprised in the reportable income of such funds. Inserted regulations 89C to 89E make provision for those sums to be adjusted in relation to income from other reporting funds and income from non-reporting funds.
Regulation 25 makes consequential amendments to regulation 92. Regulation 26 inserts regulation 92F to make provision in relation to the information to be contained in the report to participants in a transparent reporting fund. Regulation 27 makes consequential amendments to regulation 106.
Part 5 (consisting of regulations 28 to 41) contains miscellaneous amendments. Regulation 28 amends regulation 4 to clarify the definition of non-reporting fund. Regulation 29 amends regulation 12 to insert a definition of “regulated market”. Regulation 30 amends regulation 16 to clarify the amounts to be treated as distributions to participants. Regulation 31 amends regulation 54 to amend the time limits for making and withdrawing an application to become a reporting fund. Regulation 32 amends regulation 57 to make provision to ensure that where an application to become a reporting fund has been withdrawn the fund and its participants are treated as though the fund had never been a reporting fund.
Regulation 33 amends regulation 67 to extend the adjustment to be made to the reportable income of a reporting fund to income from wholly owned subsidiaries where the shares are owned indirectly by the fund or a trustee. Regulation 34 amends regulation 68 to amend the period of account in which income adjustments in relation to income from another fund are to be made. Regulation 35 inserts 68A which disapplies the adjustments made to reportable income in relation to income from non-reporting funds in certain cases where the reporting fund tracks an recognised index of listed securities. Regulation 36 amends regulation 69 to amend the conditions to be satisfied for the regulation to apply and to specify the period of account in which an income adjustment is to be made.
Regulation 37 extends the equivalence condition in regulation 74. Regulation 38 extends the genuine diversity of ownership condition in regulation 75. Regulation 39 extends the use of the defined term “relevant participant” in regulation 90. Regulation 40 amends regulation 94 to amend the date when an additional distribution is treated as made in certain cases and amends the definition of “fund distribution date”. Regulation 41 amends regulation 106 to permit a fund to provide unaudited accounts to HMRC in certain cases.
Regulation 42 amends Schedule 1 to extend the transitional provisions. Regulation 43 amends Schedule 3 to include the abbreviated reference to the Corporation Tax Act 2010 (c. 4) and expressions defined or otherwise explained in the amendments made by these Regulations to the principal Regulations.
Part 6 (consisting of regulations 44 and 45) makes provision for consequential amendments to primary legislation.
A Tax Information and Impact Note covering this instrument will be published on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm .