The Authorised Investment Funds (Tax) (Amendment) Regulations 2011

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964) (“the principal Regulations”).

Regulation 3 amends regulation 8 of the principal Regulations and makes interpretative provisions.

Regulation 4 inserts new regulations 14ZA, 14ZB and 14ZC into the principal Regulations.

New regulation 14ZA specifies the conditions that an authorised investment fund must satisfy in relation to an asset that represents an interest in an offshore non-reporting fund (“the asset”) if the disposal of the asset is not to give rise to a charge to tax on the authorised investment fund. Where the conditions are satisfied, new regulation 14ZB applies.

New regulation 14ZB provides that the disposal of an asset will not be subject to a charge to tax under the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) (“the Offshore Funds Regulations”), which would otherwise be the case.

New regulation 14ZC deals with the case where an authorised investment fund holds an asset in relation to which the conditions in regulation 14ZA(2) are not satisfied for the entire period that it holds the asset. Regulation 14ZC provides that the authorised investment fund may treat the asset as an interest in a reporting fund if it makes a deemed disposal and reacquistion of the asset representing the interest. In order to do so, the authorised investment fund must reasonably expect to satisfy the conditions in regulation 14ZA(2) from the date of the reacquisition until the date on which it disposes of the asset. If it satisfies the conditions in new regulation 14ZA(2) for this period, new regulation 14ZB applies on the disposal of the asset.

Regulation 5 amends regulation 85D of the principal Regulations so that the investment condition is met if an authorised investment fund invests more than 50% of its gross asset value in non-reporting funds or FINROFs (funds investing in non-reporting offshore funds).

Regulation 6 amends regulation 85E of the principal Regulations to specify that interests in funds which satisfy the conditions in regulation 14ZA are treated as not being interests in non-reporting funds. It brings interests in offshore funds which, by virtue of regulation 29 or 30 of the Offshore Funds Regulations, are not liable to tax under regulation 17 of those Regulations within the scope of regulation 85E of the principal Regulations. Finally, it removes the reference in paragraph (2)(b) of regulation 85E to interests in offshore funds that are treated as creditor relationship rights under section 490 of the Corporation Tax Act 2009 (“CTA”).

Regulation 7 amends the table of abbreviations and defined expressions in the Schedule to the principal Regulations.

Regulation 8 makes transitional provision for interests in funds which are, on 6th March 2011, treated as creditor relationship rights under section 490 of CTA. Such interests will continue to be interests treated as not being interests in a non-reporting fund until 5th July 2011.

Regulation 9 makes consequential amendments to the principal Regulations and the Offshore Funds Regulations.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.