The Offshore Funds (Tax) Regulations 2009 No. 3001

PART 3 U.K. REPORTING FUNDS AND THE TREATMENT OF PARTICIPANTS IN REPORTING FUNDS

CHAPTER 1 U.K. PRELIMINARY PROVISIONS

Structure [F1 and application] of this Part U.K.

49.—(1) The structure of this Part is as follows—

(a) this Chapter contains preliminary provisions;

(b) Chapter 2 deals with entry into the reporting fund regime;

(c) Chapter 3 deals with the general duties of reporting funds;

(d) Chapter 4 deals with the preparation of accounts;

(e) Chapter 5 deals with the computation of reportable income;

(f) Chapter 6 deals with transactions by certain reporting funds which are not treated as trading;

[F2 (fa) Chapter 6A deals with transparent reporting funds;]

(g) Chapter 7 deals with reports to participants;

(h) Chapter 8 deals with the tax treatment of participants in reporting funds;

(i) Chapter 9 deals with the provision of information to HMRC;

(j) Chapter 10 deals with breaches of reporting fund requirements;

(k) Chapter 11 deals with leaving the reporting fund regime;

(l) Chapter 12 deals with constant NAV funds.

(2) This Part contains provisions applying to—

(a) funds that are not constant NAV funds (see Chapters 2 to 11), F3 ...

[F4 (aa) transparent reporting funds (see Chapter 6A), and]

(b) constant NAV funds (see Chapter 12).

[F5 (3) Chapters 4 to 6 do not apply to transparent reporting funds.]

Textual Amendments

F1 Words in reg. 49 heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 22(2)

F2 Reg. 49(1)(fa) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 22(3)

F3 Word in reg. 49(2)(a) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 22(4)(a)

F4 Reg. 49(2)(aa) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 22(4)(b)

F5 Reg. 49(3) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 22(5)

Meaning of “reporting fund” U.K.

50.  In these Regulations a “ reporting fund” means an offshore fund to which this Part applies for a period of account.

[F6 Meaning of “equalisation arrangements”, “full equalisation arrangements” and “equalisation amount” U.K.

50A.   For the purposes of this Part—

(a) a reporting fund operates equalisation arrangements if it has given a statement under regulation 53(1)(h) that it intends to operate such arrangements;

(b) a reporting fund operates full equalisation arrangements if in relation to any interest acquired by way of initial purchase in the reporting period—

(i) the equalisation amount included in the consideration for the purchase is specified by the fund in a statement in writing to the participant making the acquisition, or

(ii) the equalisation amount per unit of interest in the fund is included in the report made available in accordance with regulation 90;

(c) “equalisation amount” has the meaning given in regulation 72(2).]

Textual Amendments

F6 Reg. 50A inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 5

CHAPTER 2 U.K. ENTRY INTO THE REPORTING FUND REGIME

Applications for this Part to apply U.K.

Who may make an application U.K.

51.—(1) The manager of an eligible offshore fund may make an application for this Part to apply to the fund.

(2) If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the person expected to become the manager of the fund on its establishment (the “applicant”) may make an application for this Part to apply to the fund on its establishment.

(3) In this Part—

the “applicant” means the person referred to in paragraph (2); an “application” means an existing fund application or a future fund application; an “eligible offshore fund” means an offshore fund which is not a guaranteed return fund; an “existing fund application” means an application made under paragraph (1); a “future fund application” means an application made under paragraph (2); the “manager”, in relation to an offshore fund, includes the manager or other person who has or is expected to have day to day control of the property of the fund.

Conversion of non-reporting fund into reporting fund U.K.

52.—(1) The manager of a non-reporting fund may make an application for this Part to apply to a fund if the fund is an eligible offshore fund, and—

(a) has never been a reporting fund, or

(b) has been a reporting fund, but ceased to be such a fund because it gave notice under regulation 116.

(2) The provisions of this Part that apply to an existing fund application also apply to an application made under paragraph (1).

Contents of an application U.K.

53.—(1) An application must include the following—

(a) a statement of the first period of account for which it is proposed that this Part should apply to the fund;

(b) an undertaking that no period of account will exceed 18 months;

(c) a statement whether or not the fund intends to prepare its accounts in accordance with international accounting standards, and, if it does not, a statement of which generally accepted accounting practice it intends to use;

(d) in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards;

(e) in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying how the fund intends—

(i) to comply with regulation 66(1)(b), or

(ii) to calculate the adjustment required by regulation 66(2);

(f) an undertaking to meet the requirements relating to reports to participants in the fund (see Chapter 7);

(g) an undertaking to meet the requirements relating to the provision of information to HMRC (see Chapter 9).

[F7 (h) a statement whether or not the fund intends to operate equalisation arrangements;

(i) in a case in which the fund does intend to operate equalisation arrangements, a statement whether or not the fund intends to operate full equalisation arrangements;

(j) in a case in which the fund does not intend to operate equalisation arrangements, a statement specifying whether or not the fund intends to make income adjustments in a reporting period;

(k) in a case in which the fund intends to make income adjustments in a reporting period, a statement specifying—

(i) whether the fund intends to make those adjustments on the basis of [F8 reportable income] (see [F9 regulation 72A]) or on the basis of accounting income (see [F10 regulation 72B]), and

(ii) the length of the computation period (see [F11 regulation 72C]);

(l) in a case in which the fund intends to make income adjustments in a reporting period on the basis of accounting income—

(i) a statement by the fund manager specifying how the accounting income is to be determined,

(ii) a statement by the fund manager that, on the basis of this determination, it is reasonable to expect that the difference between the amount of [F12 reportable income] per unit calculated using this method and the amount of [F12 reportable income] per unit calculated on the basis of [F12 reportable income] will be 10% or less of the latter of those amounts, and

(iii) an undertaking by the manager to meet the requirements relating to alternative income adjustments and notice to HMRC (see [F13 regulation 72B(6)]).]

(2) An existing fund application must be accompanied by the prospectus.

(3) A future fund application must be accompanied by the proposed prospectus.

(4) The application must be in English.

(5) If the prospectus or the proposed prospectus (as the case may be) is not in English, it must be accompanied by an English translation.

(6) In the case of an offshore fund constituted in the manner described in regulation 5 or 6, the requirements of this regulation may be met by providing material which is—

(a) applicable to an entity which includes the fund, and

(b) relevant for the application for this Part to apply to the fund.

Textual Amendments

F7 Reg. 53(1)(h)-(l) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 6

F8 Words in reg. 53(1)(k)(i) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(a) (with reg. 1(3)(4))

F9 Words in reg. 53(1)(k)(i) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(b) (with reg. 1(3)(4))

F10 Words in reg. 53(1)(k)(i) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(c) (with reg. 1(3)(4))

F11 Words in reg. 53(1)(k)(ii) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(d) (with reg. 1(3)(4))

F12 Words in reg. 53(1)(l)(ii) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(a) (with reg. 1(3)(4))

F13 Words in reg. 53(1)(l)(iii) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 3(e) (with reg. 1(3)(4))

Form, timing and withdrawal of application U.K.

54.—(1) An application must be made in writing to HMRC.

[F14 (2) The application must be received by HMRC before the later of—

(a) the end of the first period of account for which it is proposed that this Part should apply to the fund, and

(b) the expiry of a period of 3 months beginning with the first day on which interests in the fund are made available to investors resident in the United Kingdom.

(3) The application may be withdrawn—

(a) at any time during a period beginning with the day the application is made and ending on the expiry of a period of 28 days beginning on the day on which HMRC give notice under regulation 55(1) or (5), or

(b) at any later time, but before the end of the first reporting period, if HMRC are satisfied that the fund is not in breach of the requirements imposed by Part 3.]

(4) The application must be withdrawn—

(a) by the manager (in the case of an existing fund application), or

(b) by the applicant (in the case of a future fund application).

Textual Amendments

F14 Reg. 54(2)(3) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 31

Procedure on applications U.K.

Response by HMRC to application U.K.

55.—(1) Within 28 days beginning with the day on which HMRC receive the application, HMRC must give notice to the person who made the application—

(a) accepting the application,

(b) rejecting the application, or

(c) asking for further information in order to consider the application.

(2) HMRC must not accept an application if any item mentioned in regulation 53 is not supplied.

(3) HMRC must not accept an application if they consider that there will be a significant difference, in computing reportable income (see Chapter 5 [F15 or 6A]), between—

(a) the result given by the use of international accounting standards, and

(b) the result given by the use of the accounting practice specified in the application and by the use of the entries in the fund's accounts, specified in the application, that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards (see regulation 63).

[F16 (3A) Where the fund intends to make income adjustments on the basis of accounting income (see regulation 53(1)(l)), HMRC must not accept an application if they do not consider that it is reasonable to expect that the difference between the amount of [F17 reportable income] per unit calculated using this method and the amount of [F17 reportable income] per unit calculated on the basis of [F17 reportable income] will be 10% or less of the latter of those amounts.]

(4) Paragraph (5) applies if—

(a) HMRC have given notice under paragraph (1)(c), and

(b) the person who made the application provides further information within a period of 28 days beginning with the day on which HMRC ask for further information, or within such longer period as is agreed by HMRC.

(5) Within 28 days beginning with the day on which HMRC receive the further information, HMRC must give notice to the person who made the application—

(a) accepting the application, or

(b) rejecting the application.

Textual Amendments

F15 Words in reg. 55(3) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 7(2)

F16 Reg. 55(3A) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 7(3)

F17 Words in reg. 55(3A) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 4 (with reg. 1(3)(4))

Appeal against rejection of application U.K.

56.—(1) If HMRC reject an application, the person who made the application may appeal.

(2) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given.

(3) On an appeal, the tribunal may uphold or quash the rejection of the application.

(4) If the tribunal quashes the rejection of the application, this Part applies as if HMRC had accepted the application in the form in which it was considered by the tribunal.

[F18 CHAPTER 2A U.K. AMENDMENT TO APPLICATION FOR THIS PART TO APPLY

Textual Amendments

F18 Pt. 3 Ch. 2A inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 8

Amending a statement relating to equalisation U.K.

56A.— (1) The manager of a reporting fund may apply to amend any statement under regulation 53(1)(h) to (l) in relation to a reporting period and subsequent reporting periods by application in writing to HMRC before the end of the first reporting period in relation to which the amendment is to have effect.

(2) Paragraphs (4) to (8) do not apply in relation to an application to amend a statement under regulation 53(1)(h) and (i) or under regulation 53(1)(i) if the amendment sought is that the fund intends to operate full equalisation arrangements.

(3) An application to which paragraph (2) applies must be accepted by HMRC within 28 days beginning with the day on which HMRC receive the application.

(4) An application under paragraph (1) must specify—

(a) the reason for the application,

(b) the amendment sought to the statement, and

(c) the first reporting period in which the amendment is to apply.

(5) Within 28 days beginning with the day on which HMRC receive the application, HMRC must give notice to the manager—

(a) accepting the application,

(b) rejecting the application, or

(c) asking for further information in order to consider the application.

(6) HMRC must not accept an application if—

(a) they consider the application is made for reasons other than commercial or administrative reasons, or

(b) an application was accepted under this regulation in relation to either of the previous two reporting periods.

(7) Paragraph (8) applies if—

(a) HMRC have given notice under paragraph (5)(c), and

(b) the manager provides further information within a period of 28 days beginning with the day on which HMRC ask for further information or within such longer period as is agreed by HMRC.

(8) Within 28 days beginning with the day on which HMRC receive the further information, HMRC must give notice to the manager—

(a) accepting the application, or

(b) rejecting the application.

Appeal against refusal of application to amend a statement U.K.

56B.— (1) If HMRC reject an application the manager may appeal.

(2) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given.

(3) On an appeal, the tribunal may uphold or quash the rejection of the application.

(4) If the tribunal quashes the rejection of the application, this Part applies as if HMRC had accepted the application.]

CHAPTER 3 U.K. THE GENERAL DUTIES OF REPORTING FUNDS

Effects of entry into the reporting fund regime U.K.

57.—(1) If HMRC accept an application, the offshore fund becomes a reporting fund on whichever is the later of—

(a) the first day of the first period of account mentioned in regulation 53(1)(a), or

(b) the day on which the fund is established.

[F19 This paragraph and paragraphs (2) and (3) are subject to paragraph (4).]

(2) This Part applies to the fund and to its participants on and after the date specified in paragraph (1).

(3) Once this Part has begun to apply to a fund, it shall continue to apply unless and until it ceases to apply in accordance with Chapter 11 of this Part.

[F20 (4) Where an application has been withdrawn under regulation 54(3)(b), the fund and its participants shall be treated as if the fund had never been a reporting fund.]

Textual Amendments

F19 Words in reg. 57(1) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 32(2)

F20 Reg. 57(4) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 32(3)

General duties of reporting funds U.K.

58.  A reporting fund must—

(a) prepare accounts in accordance with the requirements of Chapter 4 [F21 (except in the case of transparent reporting funds)];

(b) provide a computation of its reportable income in accordance with the requirements of Chapter 5 [F22 or 6A, as the case may be];

(c) provide reports to participants in accordance with the requirements of Chapter 7; and

(d) provide information to HMRC in accordance with the requirements of Chapter 9.

Textual Amendments

F21 Words in reg. 58(a) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 23(2)

F22 Words in reg. 58(b) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 23(3)

CHAPTER 4 U.K. THE PREPARATION OF ACCOUNTS

Accounts to be prepared in accordance with acceptable accounting policy U.K.

59.  A reporting fund must prepare accounts—

(a) in accordance with international accounting standards, or

(b) in accordance with the generally accepted accounting practice specified in the application.

Change in accounting policy U.K.

60.—(1) This regulation applies if—

(a) there is a change of accounting policy in drawing up a reporting fund's accounts from one period of account (in this Chapter called the “earlier period”) to the next (in this Chapter called the “later period”), and

(b) the approach in each of those periods accords with the law and practice applicable in relation to that period.

(2) If there is a difference between—

(a) the accounting value of an asset or liability of the offshore fund at the end of the earlier period, and

(b) the accounting value of that asset or liability at the beginning of the later period,

a corresponding debit or credit (as the case may be) must be brought into account for the purposes of these Regulations in the later period.

(3) In paragraph (2) “accounting value” means the carrying value of the asset or liability recognised for accounting purposes.

Change in accounting practice to a generally accepted accounting practice U.K.

61.—(1) This regulation applies if—

(a) there is a change of accounting practice in drawing up a reporting fund's accounts from the earlier period to the later period, and

(b) the fund prepares accounts for the later period in accordance with a generally accepted accounting practice.

(2) If the accounts for the later period are not prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC—

(a) applying for approval of the generally accepted accounting practice, and

(b) providing the statement mentioned in regulation 53(1)(d).

(3) If the accounts for the later period are prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC.

(4) Within 28 days beginning with the day on which HMRC receive an application under paragraph (2), HMRC must give notice to the offshore fund—

(a) accepting the application, or

(b) rejecting the application.

(5) If HMRC reject an application, the offshore fund may appeal.

(6) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given.

(7) On an appeal, the tribunal may uphold or quash the rejection of the application.

CHAPTER 5 U.K. THE COMPUTATION OF REPORTABLE INCOME

General U.K.

Duty to provide computation U.K.

62.—(1) This Chapter explains how reportable income is computed.

(2) A reporting fund must provide a computation of its reportable income for a period of account.

Computation of reportable income: general U.K.

63.—(1) The starting point for computing the reportable income of a reporting fund for a period of account is—

(a) in a case in which the fund prepares its accounts in accordance with international accounting standards, the “total comprehensive income for the period” as that expression is used in international accounting standards, or

(b) in any other case, the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards.

(2) The starting point specified in paragraph (1) must be adjusted having regard to—

(a) capital items [F23 and miscellaneous items] (see regulations 64 and 65),

(b) special classes of income (see regulations 66 to 71), and

[F24 (c) any arrangements to adjust income based on the number of units in issue (see regulations 72 to 72B).]

(3) In the case of any one item, an adjustment under paragraph (2) may be made only once (even if more than one of the regulations mentioned in that paragraph apply to that item).

(4) The reportable income of the reporting fund for the period of account is the amount computed in accordance with the provisions of this Chapter and of Chapter 6.

(5) But if the computation gives rise to a negative amount, the reportable income is nil.

Textual Amendments

F23 Words in reg. 63(2)(a) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2017 (S.I. 2017/240), regs. 1(1), 2(2)(a)

F24 Reg. 63(2)(c) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 5 (with reg. 1(3)(4))

Adjustments for capital items [F25 and miscellaneous items] U.K.

Textual Amendments

F25 Words in reg. 64 cross-heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2017 (S.I. 2017/240), regs. 1(1), 2(2)(b)

Treatment of capital items following IMA SORP U.K.

64.—(1) The capital items for which an adjustment is required are such profits, gains or losses as would fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for the period of account if the accounts for that period were to be prepared in accordance with the IMA SORP.

(2) The amount specified in regulation 63(1) must be adjusted by—

(a) deducting gains that fall within the heading specified in paragraph (1), and

(b) adding losses that fall within that heading.

(3) A profit or loss from a trade may not be treated as a capital item for the purposes of this regulation. This paragraph is subject to regulation 80.

(4) For the purposes of paragraph (1) the IMA SORP applies to determine the “net capital gains/losses” of an offshore fund for a period of account in the same way that it applies to determine the “net capital gains/losses” of an authorised investment fund for an accounting period.

(5) In this regulation—

“authorised investment fund” has the meaning given in the Authorised Investment Funds (Tax) Regulations 2006 M1 ;

“the IMA SORP” means, in relation to any period of account for which it is required or permitted to be used, the Statement of Recognised Practice relating to authorised investment funds issued by the Investment Management Association in November 2008, as from time to time modified, amended or revised.

Marginal Citations

M1 S.I. 2006/964, to which there are amendments not relevant to these Regulations.

Treatment of other capital items [F26 and miscellaneous items] U.K.

65.—(1) The amount specified in regulation 63(1) must also be adjusted by adding the amounts specified in paragraph (2).

(2) Those amounts are—

(a) expenses directly related to acquisition or disposal of investments (other than those taken into account in arriving at the amounts specified in sub-paragraph (a) or (b) of regulation 64(2)), F27 ...

(b) costs relating to the setting up, merger or dissolution of the fund[F28 , and

(c) sums payable or allocated to the manager of a fund calculated by reference to an increase in the net asset value of the fund or a formula designed to reward the manager’s performance.]

Textual Amendments

F26 Words in reg. 65 heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2017 (S.I. 2017/240), regs. 1(1), 2(2)(c)

F27 Word in reg. 65(2)(a) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Offshore Funds (Tax) (Amendment) Regulations 2017 (S.I. 2017/240), regs. 1(1), 2(3)(a)

F28 Reg. 65(2)(c) and preceding word inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2017 (S.I. 2017/240), regs. 1(1), 2(3)(b)

Adjustments for special classes of income U.K.

Effective interest income or comparable amounts U.K.

66.—(1) This regulation applies if the accounting practice used does not include—

(a) the effective interest method for computing interest income (as described in international accounting standard 39 and equivalent United Kingdom financial reporting standards), or

(b) another method of accounting for interest in such a way that the difference between the purchase price of an asset and the expected redemption price of the asset is taken into account as part of the interest income over the expected life of the asset.

(2) The amount specified in regulation 63(1) must be adjusted by the addition of the net income computed by taking into account the expected redemption price of any interest bearing assets over the expected life of the asset.

(3) The sum mentioned in paragraph (2) may be computed by any reasonable method which—

(a) takes into account the full expected gain or loss on the asset, and

(b) gives a reasonably comparable result to the effective interest method.

Income from wholly-owned subsidiaries U.K.

67.—(1) This regulation applies if a reporting fund has a wholly-owned subsidiary.

(2) For the purposes of this regulation, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is—

(a) in the case of an offshore fund falling within paragraph (a) of the definition of “offshore fund” in section 40A(2) of FA 2008 M2 , directly [F29 or indirectly] owned by the fund;

(b) in the case of an offshore fund falling within paragraph (b) of the definition of “offshore fund” in that enactment, directly [F30 or indirectly] owned by the trustees of the fund for the benefit of the fund;

(c) in the case of an offshore fund falling within paragraph (c) of the definition of “offshore fund” in that enactment, owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above.

(3) But in the case of a company which has only one class of issued share capital, the reference in paragraph (2) to the whole of the issued share capital shall be construed as a reference to at least 95% of that share capital.

(4) That percentage of the receipts, expenditure, assets and liabilities of the subsidiary which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in paragraph (2) shall be regarded as the receipts, expenditure, assets and liabilities of the fund.

(5) There shall be left out of account—

(a) the interest of the fund in the subsidiary, and

(b) any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary.

(6) The adjustments required under regulations 64 and 65 must be made to the amount determined under paragraph (4).

Textual Amendments

F29 Words in reg. 67(2)(a) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 33(a)

F30 Words in reg. 67(2)(b) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 33(b)

Marginal Citations

M2 Section 40A was inserted by paragraph 2 of Schedule 22 to the Finance Act 2009 (c. 10).

Income from other reporting funds U.K.

68.—(1) This regulation applies if a reporting fund (“RF1”) has an interest in another reporting fund (“RF2”).

(2) The excess (if any) of the income reported by RF2 in respect of RF1's interest in RF2 over the amount distributed by RF2 to RF1 must be added by RF1 to the amount specified in regulation 63(1) after making the adjustments specified in regulations 64 and 65.

(3) The adjustment specified in paragraph (2) must be made in the computation of the reportable income of RF1 for the period of account [F31 in which the fund distribution date of RF2 falls or, if earlier, in which the date on which the reported income from RF2 in respect of that reporting period is recognised in the accounts of RF1].

F32 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If [F33 RF2 does not make a report available in accordance with regulation 90(5)], RF1 must—

(a) include its best estimate of reported income from RF2 as an adjustment to the computation of its reportable income for the period of account in which the latest possible fund distribution date for RF2 falls (to the extent that any such amount has not already been recognised in the computation of RF1's reportable income for that or any earlier period of account), and

(b) make any necessary corrections to its best estimate in its computation of reportable income for the first later period of account in which it has sufficient information to make those corrections.

Textual Amendments

F31 Words in reg. 68(3) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 34(2)

F32 Reg. 68(4) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 34(3)

F33 Words in reg. 68(5) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 34(4)

[F34 Index tracking funds U.K.

68A.— (1) This regulation applies if—

(a) a reporting fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met for a period of account.

(2) The conditions are that—

(a) in accordance with the reporting fund’s rule or the instrument constituting the reporting fund, the aim of the fund’s investment policy is to replicate the performance of a qualifying index,

(b) the main purpose of the investment in the non-reporting fund is to represent the composition of the qualifying index, and

(c) the capital and income returns of the reporting fund replicate as closely as practicable the returns of the investments comprised in the qualifying index.

(3) For the purposes of paragraph (2) an index is a “qualifying index” if—

(a) it is based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market,

(b) an authority responsible for regulating offshore funds recognises the index on the basis that—

(i) its composition is sufficiently diverse,

(ii) it represents an adequate benchmark for the market to which it refers, and

(iii) it is published in such a way that it is widely available, and

(c) it is calculated and published by a body which is managed independently from the management of the reporting fund.

(4) Regulations 69 to 71 do not apply in respect of the interest in the non-reporting  fund.]

Textual Amendments

F34 Reg. 68A inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 35

Income from non-reporting funds: first case U.K.

69.—(1) This regulation applies if—

(a) a reporting fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met for a period of account.

(2) The conditions are that—

F35 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the reporting fund has access to the accounts of the non-reporting fund;

(c) the reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund; and

(d) the reporting fund can reasonably expect to be able to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund.

(3) Regulation [F36 68(1) to (3)] applies as if the reporting fund were RF1 and the non-reporting fund were RF2.

(4) For the purposes of the computation mentioned in paragraph (2)(c), regulation 80 applies if (and only if) the non-reporting fund is a UCITS fund.

[F37 (5) For the purposes of applying regulation 68, “fund distribution date” means the date six months after the end of the period of account in which the income arose.

(6) If the period of account referred to in paragraph (5) is more than 12 months, there shall be two periods of account and two fund distribution dates for the purposes of applying regulation 68.

The first fund distribution date is the date six months after the end of the first 12 months in the period of account.

The second fund distribution date is the date six months after the end of the period of account in which the income arose.]

Textual Amendments

F35 Reg. 69(2)(a) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 36(2)

F36 Words in reg. 69(3) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 36(3)

F37 Reg. 69(5)(6) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 36(4)

Income from non-reporting funds: second case U.K.

70.—(1) This regulation applies if a reporting fund has an interest in a non-reporting fund, but the conditions in regulation 69(2) are not met for a period of account.

(2) No adjustments may be made under regulations 64 and 65 in respect of the interest in the non-reporting fund.

(3) But if the condition specified in paragraph (4) is met, losses made by a reporting fund in earlier periods of account on an investment in a non-reporting fund may be set against gains made on the investment in the non-reporting fund to reduce the reportable income of the reporting fund, but only to the extent that the losses—

(a) have not previously had the effect of reducing income for the period of account in which they were incurred, or

(b) have not been used previously to reduce gains arising to the non-reporting fund.

(4) The condition specified is that the losses in earlier periods of account were all made during periods in which this Part applied continuously to the reporting fund.

Income from non-reporting funds if first case ceases to apply U.K.

71.—(1) This regulation applies if—

(a) a reporting fund has an interest in a non-reporting fund, and

(b) the conditions in regulation 69(2) have been met for an earlier period of account but are no longer met for a later period of account.

(2) Regulation 70 applies for the later period of account and for all subsequent periods of account.

Adjustments for equalisation arrangements U.K.

Treatment of reporting funds operating equalisation arrangements U.K.

[F38 72.— (1) This regulation applies if a reporting fund operates equalisation arrangements.

(2) If a person acquires an interest in the fund by way of initial purchase, the reportable income must be increased by an amount equal to that part of the acquisition price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the acquisition and which is taken into account in determining the acquisition price (“the equalisation amount”).

(3) If a participant disposes of an interest in the fund by way of redemption, the reportable income must be reduced by an amount equal to that part of the redemption price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the redemption and which is taken into account in determining the redemption price.

(4) For the purposes of these Regulations a person acquires an interest in an offshore fund by way of initial purchase if the acquisition is by way of subscription for or allotment of new shares, units or other interests issued or created by the fund or by way of direct purchase from the managers of the fund acting in their capacity as managers of the fund.

(5) For the purposes of this regulation a person disposes of an interest in a fund by way of redemption if the disposal is by way of cancellation of the units, shares or other interest or by way of direct sale to the managers of the fund acting in their capacity as managers of the  fund.]

Textual Amendments

F38 Reg. 72 substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 9

[F39 Adjustments where funds do not operate equalisation arrangements U.K.

Textual Amendments

F39 Regs. 72A-72C and cross-heading inserted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 6 (with reg. 1(3)(4))

Reporting Funds not operating equalisation: income adjustments based on reportable income for computation periods U.K.

72A.— (1) This regulation applies if a reporting fund does not operate equalisation arrangements and—

(a) the fund has given a statement under regulation 53(1)(k) that it intends to make income adjustments in a reporting period on the basis of reportable income, or

(b) regulation 72B(7) applies.

(2) The reportable income of the fund for a reporting period is the sum of the reportable income per unit for all the computation periods in the reporting period multiplied by the number of units in the fund in issue at the end of the reporting period.

(3) But if the sum results in a negative amount, the reportable income for that period is nil.

(4) Where a period of account consists of two reporting periods, the reportable income for the period of account is the sum of the reportable income for both those reporting periods.

(5) The reportable income per unit for a computation period is calculated by dividing the reportable income of the fund for the computation period by the average number of units in the fund in issue during the computation period.

(6) For the purposes of paragraph (5), the reportable income of the fund for a computation period means the reportable income of the fund for that period computed in accordance with this Chapter (ignoring regulation 63(5) and this regulation) and Chapter 6 of this Part.

(7) In the computation referred to in paragraph (6), this Chapter and Chapter 6 of this Part apply as if references to a period of account of the fund were references to a computation period.

Reporting Funds not operating equalisation: income adjustments based on accounting income for computation periods U.K.

72B.— (1) This regulation applies if a reporting fund does not operate equalisation arrangements and the fund has given a statement under regulation 53(1)(k) that it intends to make income adjustments in a reporting period on the basis of accounting income.

(2) The reportable income of the fund for a reporting period is calculated as follows—

where—

AIU is the sum of the accounting income per unit for all the computation periods in the reporting period,

RI is the reportable income of the fund for the reporting period computed in accordance with this Chapter (ignoring this regulation), Chapter 6 of this Part and regulation 93,

AI is the sum of accounting income for all the computation periods in the reporting period, and

U is the number of units in the fund in issue at the end of the reporting period.

This is subject to paragraphs (6) and (7).

(3) Where a period of account consists of two reporting periods, the reportable income for the period of account is the sum of the reportable income for both those reporting periods.

(4) But if the sum results in a negative amount, the reportable income for that period is nil.

(5) The accounting income per unit for a computation period is calculated by dividing accounting income for the computation period by the average number of units in the fund in issue during the computation period.

(6) Where RI is zero the reportable income per unit of the fund for a reporting period is zero.

(7) Where the difference in the amount of reportable income per unit for any reporting period in a period of account calculated using this method and the amount of reportable income per unit for that reporting period calculated on the basis of reportable income is or is likely to be more than 10% of the latter of those amounts—

(a) the fund must make income adjustments in that and future periods of account on the basis of reportable income, and

(b) the manager must give notice to HMRC of the change in the method of income adjustment with the information provided to HMRC in relation to that period under regulation 106 (reporting requirements).

(8) In this Part “accounting income” means an amount proportionally related to the reportable income of the fund determined from the interim or management accounts of the fund, but this amount must not be less than zero.

Supplementary provisions: average number of units and computation period U.K.

72C.— (1) For the purposes of regulations 72A(5) and 72B(5), the average number of units in the fund in issue during the computation period is the sum of the units in the fund in issue during the period after each unit has been multiplied by the fraction of the period for which it is held.

(2) In this Part a “computation period” means a period determined by a fund in accordance with the following rules.

• Rule 1

  A new computation period must start—

  (a)

  at the beginning of a reporting period, and

  (b)

  immediately after the end of a previous computation period.

• Rule 2

  A computation period must end—

  (a)

  at the end of a reporting period, and

  (b)

  at the end of a period in relation to which income is allocated to participants for distribution or accumulation.

• Rule 3

  If a reporting period consists of more than one computation period those periods must be of approximately equal length.]

CHAPTER 6 U.K. TRANSACTIONS BY CERTAIN REPORTING FUNDS WHICH ARE NOT TREATED AS TRADING

Conditions to be met by reporting funds for this Chapter to apply U.K.

Introductory U.K.

73.—(1) A reporting fund meets the conditions for this Chapter to apply in respect of a period of account if it meets—

(a) the equivalence condition (see regulation 74), and

(b) the genuine diversity of ownership condition (see regulations 75 and 76).

(2) In this Part a “diversely owned fund” means a reporting fund in respect of which the conditions mentioned in paragraph (1) are met for a period of account.

The equivalence condition U.K.

74.—(1) The equivalence condition is met if the fund meets condition A [F40 , B or C] throughout the period of account.

(2) Condition A is that the fund is recognised by the [F41 Financial Conduct Authority] within the meaning of section F42 ...F43 ... 272 of FISMA 2000.

(3) Condition B is that the fund is a UCITS fund.

[F44 (4) Condition C is that the fund—

(a) is constituted in another EEA state and authorised by the competent authority in that state to market to retail or professional investors, and

(b) is required either by the competent authority in that state or by other binding arrangements to limit its borrowing and its exposure under derivative contracts and forward transactions to 100% of its net asset value.

(5) In paragraph (4), the competent authority in an EEA state is the authority designated in accordance with Article 97 of Council Directive 2009/65/EC in relation to that fund.]

Textual Amendments

F40 Words in reg. 74(1) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 37(2)

F41 Words in reg. 74(2) substituted (1.4.2013) by The Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013 (S.I. 2013/472), Sch. 2 para. 178

F42 Words in reg. 74(2) omitted (31.12.2020) by virtue of The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 30(3) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

F43 Word in reg. 74(2) omitted (22.7.2013) by virtue of The Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773), reg. 1, Sch. 2 para. 20

F44 Reg. 74(4)(5) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 37(3)

The genuine diversity of ownership condition U.K.

75.—(1) The genuine diversity of ownership condition is met if the fund meets [F45 ,or, in relation to a fund constituted by a class of interests in the main arrangements, the main arrangements meet,] conditions A to C throughout the period of account.

(2) Condition A is that the fund produces documents, available to investors and to HMRC, which contain—

(a) a statement specifying the intended categories of investor,

(b) an undertaking that interests in the fund will be widely available, and

(c) an undertaking that interests in the fund will be marketed and made available in accordance with the requirements of paragraph (4)(a).

(3) Condition B is—

(a) that the specification of the intended categories of investor do not have a limiting or deterrent effect, and

(b) that any other terms or conditions governing participation in the fund do not have a limiting or deterrent effect.

(4) Condition C is—

(a) that interests in the fund must be marketed and made available—

(i) sufficiently widely to reach the intended categories of investors, and

(ii) in a manner appropriate to attract those categories of investors, and

(b) that a person who falls within one of the intended categories of investors can, upon request to the manager of this fund, obtain information about the fund and acquire units in it.

[F46 (5) A fund also meets the genuine diversity of ownership condition if—

(a) an investor in the fund is an offshore fund, an open-ended investment company or an authorised unit trust scheme (“the feeder fund”),

(b) conditions A to C are met in relation to the fund after taking into account—

(i) the fund documents relating to the feeder fund, and

(ii) the intended investors in the feeder fund, and

(c) the fund and the feeder fund have the same manager (or proposed manager).]

Textual Amendments

F45 Words in reg. 75(1) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 38(2)

F46 Reg. 75(5) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 38(3)

Modifications etc. (not altering text)

C1 Reg. 75(2) modified (1.4.2022 in relation to accounting periods (within the meaning of Part 12 of CTA 2010) that begin on or after that date) by 2010 c. 4, s. 528ZB(5) (as inserted by Finance Act 2022 (c. 3), Sch. 3 paras. 2(3), 6(1))

The genuine diversity of ownership condition: further provisions U.K.

76.—(1) For the purposes of regulation 75(3) a limiting or deterring effect means an effect which—

(a) limits investors to a limited number of specific persons or specific groups of connected persons, or

(b) deters a reasonable investor falling within one of the intended categories of investor from investing in the fund.

(2) Condition C (see regulation 75(4) shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—

(a) the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and

(b) a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity.

(3) For the purposes of this regulation—

(a) sections 993 and 994 of ITA 2007 (connected persons) apply in the case of a person chargeable to income tax, and

(b) section 839 of ICTA M3 (connected persons) applies in the case of a person chargeable to corporation tax.

Marginal Citations

M3 Section 839 was amended by paragraph 20 of Schedule 17 to the Finance Act 1995 (c. 4), paragraph 25 of Schedule 13 to the Finance Act 2006 (c. 25), paragraph 223 of Schedule 1 to the Income Tax Act 2007 (c. 3) and by S.I. 1988/745 and 2005/3229.

Clearances in relation to the equivalence and genuine diversity of ownership conditions U.K.

Who may apply for clearance U.K.

77.—(1) The following may apply for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition—

(a) the manager of an eligible offshore fund;

(b) the manager of a non-reporting fund who makes an application under regulation 52.

(2) If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the applicant may apply for clearance that the fund will meet the equivalence condition and the genuine diversity of ownership condition on its establishment.

Procedure for obtaining clearance U.K.

78.—(1) The relevant person specified in regulation 77 (the “relevant person”) must apply in writing to HMRC for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition.

(2) A document submitted in accordance with paragraph (1) must be accompanied by the documents specified in regulation 75(2).

(3) HMRC may require the relevant person to provide further particulars if HMRC believe that full particulars of the fund have not been provided.

(4) HMRC must notify the relevant person within 28 days beginning with the day on which HMRC receive the documents mentioned in paragraphs (1) and (2) (or, as the case may be, the further particulars mentioned in paragraph (3))—

(a) giving clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition,

(b) giving that clearance subject to conditions, or

(c) refusing to give that clearance.

Circumstances in which clearance may not be relied upon U.K.

79.—(1) An offshore fund (and investors in that fund) may not rely on a clearance given under regulation 78 if any of conditions A to D is met.

(2) Condition A is that at the beginning of the first period of account of the fund to which the clearance relates (and at the beginning of each subsequent period of account), a relevant statement in the instrument constituting the fund or in its prospectus in issue for the time being is not in accordance with a relevant statement in the documents considered by HMRC before giving clearance.

(3) Condition B is that the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulations 75 and 76).

(4) Condition C is that the fund acts or is operated in contravention of a relevant statement in the instrument constituting the fund or in its prospectus.

(5) Condition D is that the documents specified in regulation 75(2) are materially amended.

(6) Condition D does not apply if the relevant person specified in regulation 77 has obtained a clearance given under regulation 78 which applies to the documents in their amended form.

(7) For the purposes of condition D, a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the equivalence condition or the genuine diversity of ownership condition in relation to any period of account.

Investment transactions carried out by diversely owned funds U.K.

Treatment of investment transactions carried out by diversely owned funds U.K.

80.—(1) This regulation applies if a diversely owned fund carries out an investment transaction in an accounting period.

(2) The investment transaction is treated as a non-trading transaction.

[F47 (3) For the purposes of these Regulations an “investment transaction” is an investment transaction specified by regulation 2 of the Investment Transactions (Tax) Regulations 2014.]

Textual Amendments

F47 Reg. 80(3) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(2)

Modifications etc. (not altering text)

C2 Reg. 80 applied (1.1.2012) by The Investment Trust (Approved Company) (Tax) Regulations 2011 (S.I. 2011/2999), regs. 1(1), 42(4) (with reg. 1(3))

C3 Reg. 80 applied (6.4.2014) by The Unauthorised Unit Trusts (Tax) Regulations 2013 (S.I. 2013/2819), regs. 1(3), 22(8)

Meaning of “investment transaction” U.K.

F48 81.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “relevant contract”: general U.K.

F48 82.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “relevant contract”: options U.K.

F48 83.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “relevant contract”: futures U.K.

F48 84.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Options and futures: further provisions U.K.

F48 85.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “relevant contract”: contracts for differences U.K.

F48 86.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Interpretation of regulation 81(c) U.K.

F48 87.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “units in a collective investment scheme” U.K.

F48 88.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

Meaning of “transaction in a carbon emission trading product” U.K.

F48 89.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Regs. 81-89 omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Investment Transactions (Tax) Regulations 2014 (S.I. 2014/685), regs. 1(1), 8(3)

[F49 CHAPTER 6A U.K. TRANSPARENT REPORTING FUNDS

Textual Amendments

F49 Pt. 3 Ch. 6A inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 24

Transparent reporting funds U.K.

89A.— (1) This Chapter explains how reportable income is computed in the case of a transparent reporting fund.

(2) For the purposes of these Regulations a “transparent reporting fund” is a reporting fund which is a transparent fund.

Reportable income: general U.K.

89B.— (1) A transparent reporting fund must provide a computation of its reportable income for a period of account.

(2) The reportable income of a transparent reporting fund for a period of account is comprised of—

(a) each of the separate sums of income for the period which fall within paragraph (a) or (b) of regulation 11 (meaning of transparent funds), and

(b) the adjustments made to those sums in accordance with regulations 89C to 89E.

(3) For the purposes of this Part the adjustments referred to in paragraph (2)(b) are excesses of reported income of the fund over the sums which form part of the income of the fund within paragraph (2)(a).

Adjustment in relation to income from other reporting funds U.K.

89C.— (1) This regulation applies if a transparent reporting fund (“TRF”) has an interest in another reporting fund (“RF”).

(2) The reportable income of TRF in relation to that interest shall include the excess (if any) of the income reported by RF in respect of TRF’s interest in RF over the amount distributed by RF in relation to that interest.

(3) The excess is treated as reportable income of TRF for the period of account in which the fund distribution date of RF falls.

(4) If RF does not make a report available in accordance with regulation 90(5), TRF must—

(a) include its best estimate of reported income from RF as an adjustment to the computation of its reportable income in relation to that interest for the period of account in which the latest possible fund distribution date for RF falls (to the extent that any such amount has not already been recognised in the computation of TRF’s reportable income for that or any earlier period of account), and

(b) make any necessary corrections to its best estimate in its computation of reportable income for the first later period of account in which it has sufficient information to make those corrections.

Adjustment in relation to income from non-reporting funds: first case U.K.

89D.— (1) This regulation applies if—

(a) a transparent reporting fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met for a period of account.

(2) The conditions are that—

(a) the transparent reporting fund has access to the accounts of the non-reporting fund;

(b) the transparent reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund; and

(c) the transparent reporting fund can reasonably expect to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund.

(3) Regulation 89C applies as if the transparent reporting fund were TRF and the non-reporting fund were RF.

(4) For the purposes of the computation mentioned in paragraph (2)(b), regulation 80 applies if (and only if) the non-reporting fund is a UCITS fund.

Adjustment in relation to income from non-reporting funds: second case U.K.

89E.— (1) This regulation applies if a transparent reporting fund has an interest in a non-reporting fund, but the conditions in regulation 89D(2) are not met for a period of account.

(2) The reportable income of the transparent reporting fund for a period of account in relation to that interest shall include an amount equal to the increase in the fair value of the interest in the non-reporting fund in that period.

(3) But if the condition specified in paragraph (4) is met, decreases in the fair value of that interest in earlier periods of account may be set against the increase referred to in paragraph (2) to reduce the amount of the increase, but—

(a) not to below zero, and

(b) only to the extent that the decreases in fair value have not previously had the effect of reducing the amount of a fair value increase.

(4) The condition specified is that the decrease in fair value in earlier periods of account all occurred during periods in which this Part applied continuously to the transparent reporting fund.

(5) In this regulation “fair value” in relation to an interest in a non-reporting fund means the amount which, at the time the value is to be determined, is the amount for which the interest could be exchanged between knowledgeable and willing parties dealing at arm’s length.]

CHAPTER 7 U.K. REPORTS TO PARTICIPANTS

Report to participants for a reporting period U.K.

90.—(1) A reporting fund must make a report available to each [F50 relevant] participant for each reporting period.

(2) For the purposes of these Regulations a report is made available if the fund—

(a) sends the report to a [F51 relevant] participant by post,

(b) sends the report to a [F51 relevant] participant by means of an electronic communications service,

(c) makes the report available on a website accessible to relevant participants and to HMRC, or

(d) publishes the report in a newspaper which is published in English in the United Kingdom and readily available in all parts of the United Kingdom.

(3)  In [F52 this regulation] “relevant participants” means participants who—

(a) are resident in the United Kingdom, or

(b) are reporting funds,

during any part of the reporting period.

(4) If the fund does not provide the report to a [F53 relevant] participant by sending it to the participant by post, the fund must, if so required by the participant, make the report available to the participant in some further manner (whether or not that further manner is also specified in regulation 90(2)) as the fund and the participant may agree.

(5) The reporting fund must make the report available within a period of six months beginning with the day immediately following the final day of the reporting period.

(6) The report must be in English.

Textual Amendments

F50 Word in reg. 90(1) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 39(2)(a)

F51 Word in reg. 90(2)(a)(b) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 39(2)(b)

F52 Words in reg. 90(3) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 39(3)

F53 Word in reg. 90(4) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 39(2)(c)

Meaning of “reporting period” U.K.

91.  In these Regulations a “reporting period” of a reporting fund means a period determined in accordance with the following rules— First rule If the reporting fund's period of account is twelve months or less, the reporting period is the same as the period of account. Second rule If the reporting fund's period of account is more than twelve months, there are two reporting periods. The first reporting period is a period consisting of the first twelve months of the period of account. The second reporting period is a period consisting of the remainder of the period of account.

Contents of report to participants[F54 : non-transparent funds] U.K.

92.—(1)  [F55 In the case of reporting funds which are not transparent funds,] the report to participants for a reporting period must include the following information—

(a) the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period;

[F56 (b) the amount per unit of any excess treated as additional distributions made to participants in the fund in respect of the reporting period; ]

(c) the dates on which distributions were made;

(d) the fund distribution date (see regulation 94(4));

(e) a statement whether or not the fund remains a reporting fund at the date the fund makes the report available.

[F57 (f) if the fund operates full equalisation arrangements and has not given a statement under regulation 50A(b)(i), the equalisation amount per unit of interest in the fund in relation to any interest acquired by way of initial purchase in the reporting period.]

(2) In these Regulations the “reported income” of a reporting fund for a reporting period means the reportable income of the fund for the reporting period, computed by or on behalf of the fund, and provided, in the report for the reporting period, to the participants in the fund.

(3) For the purposes of paragraph (1)—

[F58 (a) the amount in paragraph (b) is the amount of any excess specified in regulation 94(1) divided by the number of units in the fund in issue at the end of the reporting period.]

[F59 (b) the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period must be computed at the time the distribution is made,

(ba) subject to paragraphs (3A) and (3B), the fund may chose to calculate the equalisation amount per unit of interest in the fund either on the basis of—

(i) the sum of all the equalisation amounts in relation to all acquisitions by way of initial purchase in the reporting period divided by the total number of units acquired by way of initial purchase in the period, or

(ii) the equalisation amount in relation to the acquisition by the participant to whom the report is made available divided by the number of units acquired on that acquisition, and]

(c) the amount per unit of interest in the fund must be expressed to at least four decimal places of a pound (or other currency unit) of value per unit.

[F60 (3A) A fund cannot change the basis for calculating the equalisation amount per unit of interest in the fund more than once in three successive reporting periods.

(3B) In any reporting period all reports to participants must use the same basis for calculating the equalisation amount per unit of interest in the fund .]

(4) If the amount of the reported income per unit of interest in the fund for the reporting period is equal to, or less than, the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period, the amount to be stated for the purposes of paragraph (1)(b) is nil.

(5) This regulation is subject to regulation 93.

Textual Amendments

F54 Words in reg. 92 heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 25(2)

F55 Words in reg. 92(1) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 25(3)

F56 Reg. 92(1)(b) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 7(a)(i) (with reg. 1(3)(4))

F57 Reg. 92(1)(f) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 10(2)

F58 Reg. 92(3)(a) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 7(b) (with reg. 1(3)(4))

F59 Reg. 92(3)(a)-(ba) substituted for reg. 92(3)(a)-(b) (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 10(3)

F60 Reg. 92(3A)(3B) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 10(4)

Funds which do not operate equalisation arrangements: income adjustments on the basis of reported income U.K.

F61 92A.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F61 Reg. 92A omitted (28.6.2013) by virtue of The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 8 (with reg. 1(3)(4))

Funds which do not operate equalisation arrangements: income adjustments on the basis of accounting income U.K.

F62 92B.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F62 Reg. 92B omitted (28.6.2013) by virtue of The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 8 (with reg. 1(3)(4))

Funds which do not operate equalisation arrangements: computation period U.K.

F63 92C.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F63 Reg. 92C omitted (28.6.2013) by virtue of The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 8 (with reg. 1(3)(4))

[F64 Contents of reports to participants: transparent reporting funds U.K.

92D.   In the case of transparent reporting funds, the report to participants for a reporting period must—

(a) contain sufficient information to enable those participants to meet their tax obligations in the United Kingdom with respect to their interests in the fund, and

(b) include a statement whether or not the fund remains a reporting fund at the date the fund makes the report available.]

Textual Amendments

F64 Reg. 92D inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 26

Lengthy periods of account where full information not available U.K.

93.—(1) This regulation applies if a reporting fund—

(a) has a period of account which is longer than twelve months, and

(b) has difficulty in computing its reportable income for the reporting period constituting the first twelve months of that period of account (the “relevant reporting period”).

(2) For the purpose of preparing its report to participants for the relevant reporting period, the fund may elect—

(a) to compute its reportable income based on such information as is reasonably available, or

(b) to make a just and reasonable apportionment of the income of the period of account.

(3) The computation of reportable income for the reporting period following the relevant reporting period must include all amounts not accounted for in the relevant reporting period.

CHAPTER 8 U.K. THE TAX TREATMENT OF PARTICIPANTS IN REPORTING FUNDS

Tax treatment of the reported income of the fund in the hands of participants U.K.

Reported income: general provisions U.K.

94.—(1) In the case of a reporting fund which is not a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the distributions made by the fund in respect of the reporting period were additional distributions made to the participants in the fund in proportion to their rights.

(2) In the case of a reporting fund which is a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the income of the fund for the reporting period were additional income of the participants in the fund in proportion to their rights.

[F65 (2A) But to the extent that the participant’s rights in the fund are rights to which regulation 30 (rights in certain existing holdings) applies, the excess specified in [F66 paragraphs (1) and] (2) shall be reduced proportionately.]

(3) The excess specified in paragraphs (1) and (2) is treated as made, on the fund distribution date, [F67 or on such earlier date as the reported income in respect of that reporting period is recognised in the participant’s accounts,] to participants holding an interest in the fund at the end of the reporting period.

[F68 (3A) If—

(a) a participant disposes of an interest in a reporting fund in a reporting period (“the earlier period”), and

(b) section 106A of TCGA 1992 (identification of securities: capital gains tax) applies to identify the whole or any part of that interest with an interest acquired in the next reporting period,

then, for the purposes of paragraph (3), the disposal of the interest so identified shall be ignored and the participant shall be treated as holding that interest at the end of the earlier period.]

(4) In these Regulations the “fund distribution date” for a reporting period of a reporting fund [F69 means the date six months following the last day of the reporting period].

Textual Amendments

F65 Reg. 94(2A) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2009 (S.I. 2009/3139), regs. 1(1), 4

F66 Words in reg. 94(2A) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 40(2)

F67 Words in reg. 94(3) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 40(3)

F68 Reg. 94(3A) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 40(4)

F69 Words in reg. 94(4) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 40(5)

[F70 Equalisation amounts not treated as distributions U.K.

94A.— (1) This regulation applies if—

(a) a participant has acquired by way of initial purchase an interest in a reporting fund, and

(b) the reporting fund operates full equalisation arrangements.

[F71 (2) Where this regulation applies, distributions are reduced in accordance with either option 1 or option 2.

• Option 1

  Under this option—

  (a)

  the amount of any actual distributions to the participant in respect of the reporting period is reduced by the equalisation amount, and

  (b)

  the amount of any excess treated as additional distributions made to the participant is reduced by the amount, if any, by which the equalisation amount exceeds the amount of any actual distributions to the participant in respect of the reporting period.

• Option 2

  Under this option—

  (a)

  the amount of any excess treated as additional distributions made to the participant is reduced by the equalisation amount, and

  (b)

  the amount of any actual distributions to the participant in respect of the reporting period is reduced by the amount, if any, by which the equalisation amount exceeds the excess.]

(3) But the amount of any excess treated as additional distributions or any actual distributions shall not be reduced to below nil.

(4) For the purposes of paragraph (2) the excess is the amount treated as additional distributions made to the participant in accordance with regulation 94(1) and (2).]

Textual Amendments

F70 Reg. 94A inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 12

F71 Reg. 94A(2) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 9 (with reg. 1(3)(4))

Participants chargeable to income tax: corporate funds U.K.

95.—(1) This regulation applies if—

(a) a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period, and

(b) the fund falls within section 40A(2)(a) of FA 2008 M4 .

(2) This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant.

(3) If section 378A of ITTOIA 2005 M5 (offshore fund distributions) applies to any amount falling within paragraph (1) or (2), the amount is charged to income tax in accordance with that section.

(4) If paragraph (3) does not apply to any amount falling within paragraph (1) or (2), but the participant is entitled to a tax credit on receiving a distribution falling within paragraph (1), section 397A of ITTOIA 2005 M6 (savings and investment income: dividends from non-UK resident companies) also applies to the excess falling within paragraph (2).

Marginal Citations

M4 Section 40A was inserted by paragraph 2 of Schedule 22 to the Finance Act 2009 (c. 10).

M5 Section 378A was inserted by section 39(3) of the Finance Act 2009.

M6 Section 397A was inserted by paragraph 4 of Schedule 12 to the Finance Act 2008 (c. 9) and amended by paragraph 2 of Schedule 19 to the Finance Act 2009.

Participants chargeable to income tax: other non-transparent funds U.K.

96.—(1) This regulation applies if—

(a) a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period,

(b) the fund falls within paragraph (b) or (c) of section 40A(2) of FA 2008, and

(c) the fund is not a transparent fund.

(2) This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant.

(3) Any amount to which paragraph (1) or (2) applies is charged to income tax—

(a) under section 378A of ITTOIA 2005 (offshore fund distributions), or

(b) (if that section does not apply) under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 M7 (income charged and person liable) do not apply.

Marginal Citations

M7 Section 688(1) was amended by paragraph 22 of Schedule 12 to the Finance Act 2008.

Participants chargeable to income tax: transparent funds U.K.

97.—(1) This regulation applies if—

(a) a reporting fund is a transparent fund, and

(b) some or all of the excess specified in regulation 94(2) is treated as income of a participant by virtue of that provision.

(2) Any amount to which paragraph (1) applies is charged to income tax under Chapter 8 of Part 5 of ITTOIA 2005 as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 M8 for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 do not apply.

Marginal Citations

M8 Section 830 was amended by paragraphs 51, 96, 156 and 162 of Schedule 7 to the Finance Act 2008.

Participants chargeable to corporation tax U.K.

98.—(1) This regulation applies if some or all of the excess specified in regulation 94 is treated as made to a participant chargeable to corporation tax.

(2) The amount is exempt if it would be exempt if it were an actual distribution made by the fund.

Disposals and deemed disposals of interests U.K.

Disposals of interests U.K.

99.—(1)  [F72 Subject to paragraph (7), if a participant] has an interest in a reporting fund and disposes of the interest, the participant disposes of an asset for the purposes of tax in respect of chargeable gains.

(2) For the purposes of the disposal referred to in paragraph (1), an amount equal to the accumulated undistributed income is treated as expenditure—

(a) given for the acquisition of the asset, and

(b) falling within section 38(1)(a) of TCGA 1992 (acquisition and disposal costs).

[F73 (2A) But where regulation 94A has applied, the expenditure given for the acquisition of the asset shall be treated as reduced by an amount equal to the amount of any reduction [F74 in the actual distribution under regulation 94A(2)].]

(3) In paragraph (2) the “accumulated undistributed income” means the aggregate of amounts specified in regulation 94 on which the participant has been charged to tax under any of regulations 95 to 98.

(4) The expenditure mentioned in paragraph (2) is treated as incurred, in the case of each amount referred to in paragraph (3), on the fund distribution date for the reporting period in respect of which the amount is treated as distributed.

(5) But if the participant receives an amount in respect of the interest in the reporting fund which is chargeable to income tax, and that amount is received (or treated as received) after the date of the disposal referred to in paragraph (1), the amount is treated as received immediately before that disposal for the purposes of tax in respect of chargeable gains.

(6) This regulation is subject to regulation 17.

[F75 (7) This regulation does not apply where section 103D of TCGA 1992 (application of Act to tax transparent funds) applies.]

Textual Amendments

F72 Words in reg. 99(1) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Collective Investment Schemes and Offshore Funds (Amendment of the Taxation of Chargeable Gains Act 1992) Regulations 2017 (S.I. 2017/1204), regs. 1(1), 16(a)

F73 Reg. 99(2A) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 13

F74 Words in reg. 99(2A) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 10 (with reg. 1(3)(4))

F75 Reg. 99(7) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Collective Investment Schemes and Offshore Funds (Amendment of the Taxation of Chargeable Gains Act 1992) Regulations 2017 (S.I. 2017/1204), regs. 1(1), 16(a)

Deemed disposals of interests U.K.

100.—(1) This regulation applies if an offshore fund ceases to be a reporting fund and becomes a non-reporting fund.

(2) A participant in the fund may make an election to be treated for the purposes of TCGA 1992—

(a) as disposing of an interest in the reporting fund at the end of that fund's final period of account, and

(b) as acquiring an interest in the non-reporting fund at the beginning of that fund's first period of account.

This is subject to paragraph (3).

(3) The election mentioned in paragraph (2) may only be made if a report has been made available to the participant under regulation 90 for the reporting fund's final period of account.

(4) The disposal referred to in paragraph (2)(a) is treated as made for a consideration equal to the net asset value of the participant's interest in the fund at the end of the period of account for which the final reported income is reported to the participant.

(5) The acquisition referred to in paragraph (2)(b) is treated as made for the same amount as the disposal referred to in paragraph (2)(a).

(6) If the participant is chargeable to income tax, the election mentioned in paragraph (2) must be made by being included in a return made for the tax year which includes the disposal date.

(7) If the participant is chargeable to corporation tax, the election mentioned in paragraph (2) must be made by being included in the participant's company tax return for the accounting period which includes the disposal date.

(8) In this regulation—

“company tax return” has the same meaning as in Schedule 18 to the Finance Act 1998 M9 ;

“disposal date” means the final day of the reporting fund's final period of account.

Marginal Citations

M9 1998 c. 36.

Charitable companies and charitable trusts U.K.

Special provisions applying to charitable companies and charitable trusts U.K.

101.—(1) This regulation applies if—

(a) a charitable company is a participant in a reporting fund, or

(b) the trustees of a charitable trust are participants in a reporting fund.

(2) No liability to tax arises in respect of any amount which, under regulation 94(1), is treated as distributed to a charitable company or the trustees of a charitable trust.

(3) Paragraph (2) of regulation 99 (read with paragraphs (3) and (4) of that regulation) does not apply to the disposal of an interest in a reporting fund by a charitable company or the trustees of a charitable trust.

(4) In this regulation “charity” and “charitable company” have the same meaning as in section 506 of ICTA M10 .

Marginal Citations

M10 Section 506 was amended by section 55(2) of the Finance Act 2006 (c. 25) and paragraph 95 of Schedule 1 to the Income Tax Act 2007 (c. 3).

Anti-avoidance provisions U.K.

Treatment of financial traders if conditions specified in regulation 73 are met U.K.

102.—(1) This group of regulations applies if a financial trader holds, or has held, an interest in a diversely owned fund.

(2) In this Chapter—

“this group of regulations” means this regulation and regulations 103 to 105;

“financial trader” has the meaning given by regulation 105.

(3) In computing the trading profits or losses of the financial trader for the relevant period, the following amounts must be brought into account—

(a) all distributions received by or credited to the financial trader in respect of the interest for the relevant period, and

(b) any amount required to be brought into account under regulation 103.

(4) In this group of regulations “relevant period” means—

(a) in the case of a financial trader within the charge to income tax, a period of account, and

(b) in the case of a financial trader within the charge to corporation tax, an accounting period.

(5) In this group of regulations references to distributions are subject to section 130 of CTA 2009 (insurers receiving distributions etc).

Amounts brought into account in computing trading profits or losses of financial traders U.K.

103.—(1) The only amounts that may be brought into account in computing the trading profits or losses of the financial trader in respect of the interest in the reporting fund for the relevant period are—

(a) amounts within regulation 102(3)(a), and

(b) amounts brought into account in accordance with Cases A to D.

(2) Paragraph (1) is subject to section 130 of CTA 2009 and to regulation 104.

(3) Case A applies if the financial trader holds the interest at the beginning of the relevant period and continues to hold the interest throughout the relevant period. If Case A applies, the amount to be brought into account is the difference between the market value of the interest at the end of the relevant period and the market value of the interest at the end of the period immediately preceding the relevant period.

(4) Case B applies if the financial trader acquires the interest during the relevant period and continues to hold the interest throughout the remainder of the relevant period. If Case B applies, the amount to be brought into account is the difference between the market value of the interest at the end of the relevant period and the acquisition cost of the interest.

(5) Case C applies if the financial trader holds the interest at the beginning of the relevant period and disposes of the interest during the period. If Case C applies the amount to be brought into account is the difference between the disposal value of the interest and the market value of the interest at the end of the period immediately preceding the relevant period.

(6) Case D applies if the financial trader acquires and disposes of the interest during the relevant period. If Case D applies the amount to be brought into account is the difference between the disposal value of the interest and its acquisition cost.

Interests not within regulation 103 U.K.

104.—(1) Regulation 103 does not apply in respect of an interest in a reporting fund if—

(a) conditions A and B are met, or

(b) condition C is met.

(2) Condition A is that the interest forms part of the financial trader's stock in trade and all the profits and losses, including distributions, arising in respect of the interest are included in the computation of the financial trader's trading profits for the relevant period.

(3) Condition B is that the interest is accounted for under generally accepted accounting practice on the basis of fair value accounting.

(4) Condition C is that the interest is a relevant holding in respect of which the provisions of section 490 of CTA 2009 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights) apply in relation to the financial trader.

(5) In paragraph (4) a “relevant holding” means—

(a) any rights under a unit trust scheme,

(b) [F76 an interest] in an offshore fund, or

(c) any shares in an open-ended investment company.

Textual Amendments

F76 Words in reg. 104(5)(b) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 14(b) (with reg. 1(3)(4))

Meaning of “financial trader” U.K.

105.—(1) In this Chapter “ financial trader” means a person who is carrying on a business which is—

(a) a banking business,

(b) an insurance business, or

(c) a business consisting wholly or in part of dealing in trading assets such that any profit on such assets would form part of the trading profits of that business.

This is subject to paragraphs (2) and (3).

(2) For the purposes of paragraph (1)(b) an insurance business does not include life assurance business carried on by an insurance company and if such a company carries on both life assurance business and any other insurance business the company must not be treated as a financial trader in respect of the life assurance business.

(3) If—

(a) a financial trader (“A”) directly or indirectly transfers trading assets to a diversely owned fund under, or as part of, an arrangement which has an unallowable purpose, and

(b) a connected person (“B”)—

(i) holds an interest in the diversely owned fund at the time of the transfer, or

(ii) directly or indirectly acquires an interest in the diversely owned fund at a later time,

B is treated as being a financial trader in relation to that interest.

(4) In this regulation “trading assets” means—

(a) stocks or shares;

(b) a relevant contract (construed in accordance with regulations 82 to 86);

(c) a loan relationship (construed in accordance with regulation 87);

(d) units in a collective investment scheme (construed in accordance with regulation 88);

(e) securities of any description not falling within any of sub-paragraphs (a) to (d);

(f) foreign currency; or

(g) a carbon emission trading product (construed in accordance with regulation 89);

a profit on the sale of which would form part of the trading profits of the financial trader.

(5) An arrangement includes any scheme, understanding or transaction of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions.

(6) An arrangement has an unallowable purpose if the main purpose or one of the main purposes for either A or B being party to the arrangement is to obtain a tax advantage or an income tax advantage for any person.

(7) In paragraph (6)—

“tax advantage” has the meaning given by section of 840ZA of ICTA M11 ;

“income tax advantage” has the meaning given by section 683 of ITA 2007.

Marginal Citations

M11 Section 840ZA was inserted by paragraph 225 of Schedule 1 to the Income Tax Act 2007 (c. 3).

CHAPTER 9 U.K. THE PROVISION OF INFORMATION TO HMRC

Reporting requirements U.K.

106.—(1) A reporting fund must provide the following information to HMRC in relation to each period of account—

(a) [F77 subject to paragraph (3),] its audited accounts F78 ...;

(b) its computation of its reportable income for the period of account based on its audited accounts (see Chapter 5 [F79 or 6A, as the case may be]);

(c) a copy of the report made available to participants for each reporting period falling within the period of account (including, for each reporting period, the information specified in regulation 92(1) [F80 or 92D, as the case may be]);

(d) the reported income of the fund for each reporting period falling within the period of account;

(e) the amount actually distributed to participants in respect of each reporting period falling within the period of account;

(f) the number of units in the fund in issue at the end of each reporting period falling within the period of account;

(g) the amount of the reported income per unit of interest in the fund in respect of each reporting period falling within the period of account;

(h) a declaration confirming that the fund has complied with the obligations specified in regulations 53 and 58.

(2) The information specified in paragraph (1) must be provided within six months of the end of the period of account.

[F81 (3) A reporting fund may provide unaudited accounts for a period of account if HMRC are satisfied, in relation to that period, that—

(a) it would be impossible [F82 to provide audited accounts or unreasonable to expect them to be provided, and]

(b) there is no reason to believe that the unaudited accounts cannot be relied upon for the purposes of calculating reportable income.]

Textual Amendments

F77 Words in reg. 106(1)(a) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 41(2)

F78 Words in reg. 106(1)(a) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 27(a)

F79 Words in reg. 106(1)(b) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 27(b)

F80 Words in reg. 106(1)(c) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 27(c)

F81 Reg. 106(3) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/1211), regs. 1(1), 41(3)

F82 Words in reg. 106(3)(a) substituted (28.6.2013) by The Offshore Funds (Tax) (Amendment No. 2) Regulations 2013 (S.I. 2013/1411), regs. 1(1), 11 (with reg. 1(3)(4))

Information obligations of reporting funds U.K.

107.—(1) HMRC may give notice requiring a reporting fund or its managers, within such time, not being less than 42 days, as is specified in the notice, to provide any information, particulars or documents, in the possession or power of the reporting fund or its managers, as HMRC may reasonably require for the purposes of determining whether the fund has met, or continues to meet, its obligations under Chapter 3 of this Part.

(2) Before a notice is given to a reporting fund by HMRC under paragraph (1), the fund must have been given a reasonable opportunity to deliver the information, particulars or documents, or to make them available (the “initial request”); and HMRC must not give notice under paragraph (1) until the initial request has been given to the fund.

(3) HMRC must give the initial request to the reporting fund or its manager within a period of one year beginning with the day that the fund provides the information specified in regulation 106(1).

(4) HMRC may extend the time specified in paragraph (1) if they consider it reasonable to do so.

(5) A person to whom a notice under paragraph (1) is given may appeal.

(6) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice under paragraph (1) is given.

(7) On an appeal, the tribunal may uphold, vary or quash the notice.

CHAPTER 10 U.K. BREACHES OF REPORTING FUND REQUIREMENTS

Types of breaches U.K.

108.—(1) This Chapter applies if a reporting fund is in breach of a requirement imposed in this Part.

(2) A breach of a requirement imposed in this Part is—

(a) a minor breach, or

(b) a serious breach.

(3) For the purposes of these Regulations, a breach of a requirement imposed in this Part is a “serious breach” if it is—

(a) a breach specified as a serious breach in a provision of this Chapter, or

(b) a breach which is not a minor breach.

(4) For the purposes of these Regulations, a breach of a requirement imposed in this Part is a “minor breach” if it is a breach (other than a breach specified as a serious breach in a provision of this Chapter)—

(a) for which there is a reasonable excuse, or

(b) which is inadvertent and remedied as soon as reasonably possible.

This paragraph is subject to the following provisions of this regulation.

(5) For the purposes of this Part a minor breach is not regarded as a breach if the reporting fund corrects the breach without any HMRC intervention.

(6) For the purposes of these Regulations there is an “HMRC intervention” in relation to a reporting fund if HMRC request the fund to provide them with information relating to a requirement imposed in this Part. This is subject to paragraph (7).

(7) There is no HMRC intervention in relation to a reporting fund if—

(a) the fund takes the initiative to correct a minor breach, and

(b) HMRC request the fund to provide them with information so that they may deal with the initiative taken.

(8) Regulation 109 deals with the consequences of minor breaches.

(9) Regulation 114 deals with the consequences of serious breaches.

Consequences of minor breaches U.K.

109.—(1) If a reporting fund is in breach of a requirement imposed in this Part and the breach is a minor breach, the fund continues to be treated as a reporting fund.

(2) Paragraph (1) is subject to the following provisions of this Chapter.

(3) If paragraph (1) applies on four separate occasions in a period of ten years beginning with the first day of the period of account in which the first breach occurs, the fourth breach is a serious breach.

(4) If a single event results in more than one minor breach within a single period of account, there is only one minor breach in that period of account for the purposes of this Chapter.

Differences between reported income and reportable income U.K.

110.—(1) This regulation applies if there is a difference between—

(a) the reportable income of a reporting fund for a period of account, and

(b) the reported income of the fund for all reporting periods comprised in the period of account.

(2) The following amounts must be determined for each reporting period comprised in the period of account—

(a) the amount of the reported income for the reporting period, and

(b) the amount of the reportable income for the period of account that is referable to that reporting period.

(3) If the difference between the two amounts specified in paragraph (2) is 10% or less of the reportable income, there is no breach of a requirement imposed in this Part.

(4) If the difference between the two amounts specified in paragraph (2) is more than 10% but not more than 15% of the reportable income—

(a) an amount equal to the difference must be added to the reported income—

(i) for the reporting period in which the error is established, or

(ii) for the following reporting period; or

(b) the reporting fund must make a supplementary report for the period of account in which the difference occurs before the end of a period of three months beginning immediately after the period of account in which the error is established.

(5) If the difference between the two amounts specified in paragraph (2) is more than 15% of the reportable income, the reporting fund must make a supplementary report to participants for the period of account in which the difference occurs before the end of a period of three months beginning immediately after the period of account in which the error is established.

(6) The supplementary report mentioned in paragraphs (4) and (5) must be made to those persons who were participants in the fund at the end of the period of account in which the difference occurs.

(7) If paragraph (4) or (5) applies and the action specified in the applicable paragraph is taken as soon as reasonably possible, there is a minor breach.

(8) If paragraph (4) or (5) applies but the action specified in the applicable paragraph is not taken as soon as reasonably possible, there is a serious breach.

(9) For the purposes of paragraph (4) an error is established for a reporting period if, during that reporting period—

(a) HMRC conclude—

(i) that an error has been made in respect of an earlier reporting period, and

(ii) that, as a result of the error, the difference between the reported income for the reporting period and the reportable income for the period of account in which the reporting period is comprised is more than 10% but not more than 15%; and

(b) HMRC give notice to the reporting fund of the matters specified in sub-paragraph (a).

(10) For the purposes of paragraph (5) an error is established for a period of account if, during that period of account—

(a) HMRC conclude—

(i) that an error has been made in respect of an earlier period of account, and

(ii) that, as a result of the error, the difference between the reported income and the reportable income for the period of account is more than 15%; and

(b) HMRC give notice to the reporting fund of the matters specified in sub-paragraph (a).

Provision of report that is incorrect or incomplete U.K.

111.—(1) This regulation applies if—

(a) a reporting fund provides a report specified in paragraph (2) that is incorrect or incomplete, and

(b) regulation 110 does not apply.

(2) The reports specified are—

(a) the report to participants in accordance with the requirements of Chapter 7 of this Part, and

(b) the report to HMRC in accordance with the requirements of Chapter 9 of this Part.

(3) If the reporting fund provides a correct report as soon as reasonably possible, there is a minor breach.

(4) If the reporting fund does not provide a correct report as soon as reasonably possible, there is a serious breach.

Cases where information is not provided U.K.

112.—(1) This regulation applies if, on the relevant date, a reporting fund has not provided—

(a) the information specified in regulation 106(1) to HMRC in relation to a period of account (the “requisite period of account”), and

(b) a report to each participant for each reporting period comprised in the requisite period of account.

(2) In paragraph (1) the “relevant date” means the day immediately following the expiry of the period of six months beginning immediately after the end of the requisite period of account.

(3) If the reporting fund provides the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of four months beginning with the relevant date, the breach is not regarded as a breach for the purposes of this Part.

(4) If the reporting fund does not provide the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of four months beginning with the relevant date but does provide that information and those reports within a period of twelve months beginning with the relevant date, there is a minor breach.

(5) If the reporting fund does not provide the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of twelve months beginning with the relevant date, there is a serious breach.

Serious breaches U.K.

113.—(1) There is a serious breach if condition A, B, C or D is met.

(2) Condition A is that a period of account of a reporting fund exceeds 18 months.

(3) Condition B is that a reporting fund has used an accounting practice which—

(a) is not in accordance with international accounting standards, and

(b) has not been approved by HMRC (see regulations 53, 55 and 61).

(4) Condition C is that—

(a) a reporting fund fails, or its managers fail, to provide the information, particulars or documents within the time specified in a notice given under regulation 107(1), and

(b) there is no appeal against the notice within the time specified in regulation 107(6).

(5) Condition D is that—

(a) on an appeal against a notice given under regulation 107(1), the tribunal varies the notice,

(b) a reporting fund fails, or its managers fail, to provide the information, particulars or documents within the time specified in the notice (as so varied), and

(c) there is no appeal against the decision of the tribunal.

Consequences of serious breaches U.K.

114.—(1) This regulation applies if conditions A and B are met.

(2) Condition A is that—

(a) a reporting fund is in breach of a requirement imposed in this Part, and

(b) the breach is a serious breach.

(3) Condition B is that HMRC give notice to the fund—

(a) stating that the fund is in breach of a requirement imposed in this Part and that the breach is a serious breach, and

(b) specifying the serious breach.

(4) The fund is treated as a non-reporting fund for the reporting period in which HMRC give the notice and for all subsequent periods. This is subject to paragraphs (5) and (6).

(5) If regulation 113(4) applies, the fund is treated as a non-reporting fund for the reporting period in which the notice is given and for all subsequent periods.

(6) If regulation 113(5) applies, the fund is treated as a non-reporting fund for the reporting period in which the notice as varied is given and for all subsequent periods.

Appeal against exclusion from the reporting fund regime U.K.

115.—(1) If HMRC give notice to a fund under regulation 114(3) (an “exclusion notice”), the fund may appeal.

(2) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the exclusion notice is given.

(3) On an appeal, the tribunal may uphold or quash the exclusion notice.

CHAPTER 11 U.K. LEAVING THE REPORTING FUND REGIME

Termination by notice given by reporting fund U.K.

116.—(1) If a reporting fund gives a notice under this regulation specifying a day (the “specified day”) at the end of which this Part is to cease to apply to the fund, this Part shall cease to apply to the fund at the end of that day.

(2) The specified day must be the last day of a period of account of the reporting fund.

(3) A notice under paragraph (1) must be given in writing to HMRC before the specified day.

(4) If the fund gives a notice under paragraph (1), the fund must also make the notice available to each participant before the specified day.

(5) Paragraphs (2) to (4) of regulation 90 apply to determine whether the notice is made available to a participant in the same way as they apply to determine whether a report for a reporting period is made available to a participant.

(6) This regulation is subject to regulation 117.

Reporting fund not complying with requirements U.K.

117.—(1) This regulation applies if—

(a) a reporting fund gives a notice under regulation 116, and

(b) the fund has not complied with all requirements imposed in this Part for all periods during which it was a reporting fund.

(2) For the purposes of these Regulations the fund is treated as a fund to which regulation 114 has applied and not as a fund to which regulation 116 has applied.

CHAPTER 12 U.K. CONSTANT NAV FUNDS

Interpretation U.K.

Meaning of “constant NAV fund” U.K.

118.—(1) In these Regulations a “ constant NAV fund” means an offshore fund that meets conditions A and B.

(2) Condition A is that the net asset value of the fund (expressed in the currency in which units are issued) will not fluctuate by more than an insignificant amount throughout the fund's existence.

(3) Condition B is that condition A is met as a result of—

(a) the nature of the fund's assets, and

(b) the frequency with which the fund distributes its income.

Modified application of this Part U.K.

General U.K.

119.  In the case of a constant NAV fund, Chapters 2 to 11 of this Part apply with the following modifications.

Modified application of Chapter 2 U.K.

120.—(1) Chapter 2 applies with the following modifications.

(2) In regulation 53 for paragraph (1) substitute—

“(1) An application must include the following—

(a) a statement of the first period of account for which it is proposed that the fund should be treated as a constant NAV fund for the purposes of these Regulations,

(b) a statement that the fund is, or will be, a constant NAV fund at the beginning of that first period of account, and

(c) an undertaking to notify HMRC if the offshore fund ceases to be a constant NAV fund.”.

(3) Regulations 55 and 56 do not apply.

Modified application of Chapter 3 U.K.

121.—(1) Chapter 3 applies with the following modifications.

(2) For regulation 57 substitute—

“Effects of entry into the reporting fund regime

57A.— (1) Unless HMRC reject an application because an item specified in regulation 53(1) has not been supplied, the offshore fund becomes a constant NAV fund on whichever is the later of—

(a) the first day of the first period of account mentioned in regulation 53(1)(a), or

(b) the day on which the fund is established.

(2) This Part applies to the constant NAV fund and to its participants on and after the date specified in paragraph (1).

(3) Once this Part has begun to apply to a constant NAV fund, it shall continue to apply unless and until the fund notifies HMRC that it has ceased to be a constant NAV fund.

(4) See regulation 108A for the consequences where the net asset value of the fund has risen by more than an insignificant amount and the fund has not notified HMRC that it has ceased to be a constant NAV fund.”.

(3) Regulation 58 does not apply.

Disapplication of Chapters 4 to 9 U.K.

122.  Chapters 4 to 9 do not apply.

Modified application of Chapter 10 U.K.

123.  For regulations 108 to 115 substitute—

“Consequences of rise in net asset value of fund

108A.— (1) This regulation applies if—

(a) this Part applies to a constant NAV fund,

(b) the net asset value of the fund (expressed in the currency in which units are issued) has risen by more than an insignificant amount, and

(c) the fund has not notified HMRC that it has ceased to be a constant NAV fund.

(2) But this regulation does not apply if the net asset value of a constant NAV fund (expressed in the currency in which units are issued) has fallen by more than an insignificant amount.

(3) A participant who disposes of an interest in the fund and who makes a chargeable gain on the disposal is treated as making an offshore income gain.”.

Disapplication of Chapter 11 U.K.

124.  Chapter 11 does not apply.