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The Offshore Funds (Tax) Regulations 2009

Type Statutory-Instrument

Publication 2009-11-12

State In force

Department King's Printer of Acts of Parliament

Source legislation.gov.uk

articles Not indexed

Reform history JSON API PDF

Made: 12th November 2009

Coming into force: 1st December 2009

The Treasury make the following Regulations in exercise of the powers conferred by sections 41(1) and 42 of the Finance Act 2008 .

In accordance with section 42A(2)(c) of that Act , a draft of this instrument was laid before the House of Commons and approved by a resolution of that House.

PART 1 — INTRODUCTION

Preliminary provisions

Citation, commencement and effect

1

(1) These Regulations may be cited as the Offshore Funds (Tax) Regulations 2009 and shall come into force on 1st December 2009.

(2) These Regulations have effect—

(a) for the purposes of income tax—

(i) for the tax year 2009-10 and subsequent tax years, and

(ii) for distributions made on or after 1st December 2009;

(b) for the purposes of corporation tax—

(i) on income, for accounting periods ending on or after 1st December 2009 and for distributions made on or after that date, and

(ii) on chargeable gains, in relation to disposals made on or after 1st December 2009; and

(3) Paragraph (2) is subject to Schedule 1 to these Regulations (transitional provisions and savings).

Structure of these Regulations

2

The structure of these Regulations is as follows—

this Part contains introductory provisions;

Part 2 deals with the treatment of participants in non-reporting funds;

Part 3 deals with reporting funds and the treatment of participants in reporting funds;

Part 3A deals with annual payments to non-resident participants;

Part 4 makes consequential amendments to primary legislation.

General provisions

Definition of “offshore fund”

3

(1) In these Regulations “offshore fund” has the meaning given by section 40A(2) of FA 2008 (read with the provisions of the relevant group of sections).

(2) Paragraph (1) does not apply to the use of the words “offshore fund” in the expression “material interest in an offshore fund”.

Classification of offshore funds

4

(1) Offshore funds consist of—

(a) non-reporting funds (see Part 2 of these Regulations), and

(b) reporting funds (see Part 3 of these Regulations).

(2) In a period of account an offshore fund is a non-reporting fund unless it is a fund to which Part 3 of these Regulations applies ....

Treatment of umbrella arrangements and of funds comprising more than one class of interest

Treatment of umbrella arrangements

5

In these Regulations, in relation to an offshore fund constituted by a part of umbrella arrangements (within the meaning of section 40C of FA 2008)—

(a) a reference to the assets of an offshore fund is to such of the assets of the umbrella arrangements as under the arrangements form part of the separate pool to which that part of the umbrella arrangements relates;

(b) a reference to the income of an offshore fund is to the income arising from those assets; and

(c) a reference to a participant in an offshore fund is to a person for the time being owning an interest in that separate pool.

Treatment of funds comprising more than one class of interest

6

In these Regulations, in relation to an offshore fund constituted by a class of interest in the main arrangements (within the meaning of section 40D of FA 2008)—

(a) a reference to the assets of an offshore fund is to the assets of the main arrangements;

(b) a reference to the income of an offshore fund is to such of the income of the main fund as is attributable to interests of that class under the arrangements constituting the main arrangements; and

Interpretation

Meaning of “participant”

7

In these Regulations references to a participant in a fund are to be read in accordance with section 40A(5) of FA 2008.

Meaning of “interest” (of a participant in an offshore fund)

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(1) For the purposes of these Regulations the interest of a participant in an offshore fund is the investment held by a participant taking part in arrangements (or arrangements constituting a fund) to which the relevant group of sections applies.

(2) Paragraph (1) does not apply to the use of the word “interest” in the expression “material interest in an offshore fund”.

Meaning of “guaranteed return fund”

9

(1) For the purposes of these Regulations an offshore fund is a guaranteed return fund if conditions A to C are met.

(2) Condition A is that the return on the shares or other interests in the fund is defined by reference to an index.

(3) Condition B is that the assets of the fund which are held to produce the return on the shares or other interests concerned cannot give rise to a return which, if it arose directly to an individual resident in the United Kingdom, would be chargeable to income tax.

(4) Condition C is that it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangements constituting the offshore fund is or was the production for participants of a return that equates, in substance, to the return on an investment of money at interest.

Meaning of “market value”

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(1) For the purposes of these Regulations the market value of any asset is to be determined in like manner as it would be determined for the purposes of TCGA 1992.

(2) But, in the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 272(5) of that Act (meaning of “market value” in relation to rights of unit holders in a unit trust scheme) shall apply with any necessary modifications for determining the market value of the interest for the purposes of these Regulations.

Meaning of “transparent fund”

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For the purposes of these Regulations a fund is a “transparent fund” if, in the case of holders of interests in the fund who are individuals resident in the United Kingdom, any sums which form part of the income of the fund are of such a nature that those holders—

(a) are chargeable to tax under a provision specified in section 830(2) of ITTOIA 2005 in respect of such of those sums as are referable to their interests, or

(b) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom.

General interpretation

12

In these Regulations—

“HMRC” means Her Majesty's Revenue and Customs;

“period of account”, in relation to an offshore fund, means any period for which accounts of the offshore fund are drawn up;

“proposed prospectus” includes—any document supplementing or amending the proposed prospectus, andany document fulfilling the same function as a proposed prospectus;

“prospectus” includes—any document supplementing or amending the prospectus, andany document fulfilling the same function as a prospectus;

“regulated market” means—a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation;

the “relevant group of sections” means sections 40A to 42A of FA 2008 ;

“tax year”—in relation to income tax, has the meaning given by section 4(2) of ITA 2007, andin relation to capital gains tax, has the meaning given by section 288(1ZA) of TCGA 1992 ;

“tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal;

“UCITS fund” means—a UCITS within the meaning given by section 236A of the Financial Services and Markets Act 2000, oran undertaking established in Gibraltar which is a UCITS under the law of Gibraltar which implemented Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities.

Transitional provisions etc.

Transitional provisions and savings, repeals, abbreviations and general index

13

(1) Schedule 1 to these Regulations (which contains transitional provisions and savings) has effect.

(2) Schedule 2 to these Regulations (which contains repeals) has effect.

(3) The repeals contained in Schedule 2 have effect subject to the saving contained in paragraph 3(4) of Schedule 1.

(4) Schedule 3 to these Regulations (which contains abbreviations and defined expressions that apply for the purposes of these Regulations) has effect.

(5) Part 1 of Schedule 3 gives the meaning of the abbreviated references to Acts used in these Regulations.

(6) Part 2 of Schedule 3 lists the places where expressions used in these Regulations are defined or otherwise explained—

(a) in these Regulations for the purposes of these Regulations, or

(b) in these Regulations for the purposes of a Part or Chapter of these Regulations.

PART 2 — THE TREATMENT OF PARTICIPANTS IN NON-REPORTING FUNDS

CHAPTER 1 — PRELIMINARY PROVISIONS

Structure of this Part

14

The structure of this Part is as follows—

(a) this Chapter contains preliminary provisions;

(b) Chapter 2 deals with charges to tax on participants in non-reporting funds;

(d) Chapter 4 deals with disposals of interests in non-reporting funds;

(e) Chapter 5 deals with offshore income gains and the computation of offshore income gains;

(f) Chapter 6 deals with the deduction of offshore income gains in computing chargeable gains;

(g) Chapter 7 deals with the conversion of a non-reporting fund into a reporting fund.

Meaning of “material disposal”

15

In these Regulations a “material disposal” means a disposal to which this Part applies.

CHAPTER 2 — CHARGES TO TAX ON PARTICIPANTS IN NON-REPORTING FUNDS

Charge to tax on certain amounts treated as distributions

Treatment of certain amounts as distributions

16

(1) This regulation applies if a non-reporting fund which is a transparent fund has an interest in a reporting fund.

(2) In the case of any excess specified in regulation 94(1) or (2) which is treated, under that regulation, as made to the non-reporting fund, the Tax Acts have effect as if the excess were additional income of the participants in the non-reporting fund in proportion to their rights.

(3) The additional income is treated as arising on the same date as the excess is treated as made to the non-reporting fund.

(4) If a participant in the non-reporting fund is chargeable to income tax, the additional income is charged as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 .

(5) If a participant in the non-reporting fund is chargeable to corporation tax, the additional income is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged).

Charge to tax on disposal of asset

The charge to tax

17

(1) There is a charge to tax if—

(a) a person disposes of an asset,

(b) either condition A or condition B is met, and

(2) Condition A is that the asset is an interest in a non-reporting fund at the time of the disposal.

(3) Condition B is that—

(a) the asset is an interest in a reporting fund at the time of the disposal,

(b) the reporting fund was previously a non-reporting fund (becoming a reporting fund as the result of an application under regulation 52),

(d) an election under regulation 48 was not prevented by paragraph (5) of that regulation, and

(e) no election has been made under regulation 48(2).

(3A) Where the asset is an interest in a reporting fund acquired in consequence of an arrangement to which section 135 (exchange of securities for those in another company treated as not involving a disposal) or section 136 (scheme of reconstruction involving issue of securities treated as exchange not involving a disposal) of TCGA 1992 applied, the reporting fund referred to in sub-paragraph (b) of condition B is the fund that was company A for the purposes of either of those sections and the interest referred to in sub-paragraph (c) of condition B is the interest in that fund.

(4) For the purposes of paragraph (3)(c) the “material period” means a period beginning with the day on which consideration was given for the acquisition of the asset or on 1st January 1984 (whichever is the later) and ending with the day on which the fund became a reporting fund.

(4A) For the purposes of paragraph (4), where the asset was acquired on the vesting of variable remuneration represented by profit allocated under section 863I of ITTOIA 2005 (allocation of profit to the AIFM firm), the date on which the variable remuneration was awarded is treated as the date on which consideration was given for the acquisition of the asset.

(4B) Terms used in paragraph (4A) which are also used in section 863I of ITTOIA 2005 have the same meaning as in that section.

(5) Chapter 5 of this Part deals with offshore income gains and the computation of offshore income gains.

The charge to tax: further provisions

18

(1) The offshore income gain arising is treated for all the purposes of the Tax Acts as income which arises at the time of the disposal to the person making the disposal (or treated as making the disposal).

(2) The tax is charged on the person making the disposal (or treated as making the disposal).

(3) In the case of a person chargeable to income tax, tax is charged under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the disposal is made, but sections 688(1) and 689 of ITTOIA 2005 (income charged and person liable) do not apply.

(4) In the case of a person chargeable to corporation tax, tax is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged) for the accounting period in which the disposal is made.

(5) Paragraph (1) is subject to—

(a) regulation 19 (income treated as arising under regulation 17: remittance basis);

(b) regulation 20(1) (offshore income gain arising to non-resident trustees not treated as income of settlor);

(d) regulation 24(6) (application of section 13 of TCGA 1992).

(6) Nothing in regulation 17 of these Regulations applies to—

(a) an authorised investment fund to which regulation 14ZB, 14ZD(1) or Part 6A of the Authorised Investment Fund (Tax) Regulations 2006 applies, ...

(b) an investment trust company to which regulation 43 or 45 of the Investment Trust (Approved Company) (Tax) Regulations 2011 apply, or

(c) the trustees of an exempt unauthorised unit trust to which regulations 22 or 23 of the Unauthorised Unit Trusts (Tax) Regulations 2013 applies.

Income treated as arising under regulation 17: remittance basis

19

(1) This regulation applies to income treated as arising under regulation 17 to an individual in a tax year if—

(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the individual for that year, and

(b) the individual is not domiciled in the United Kingdom in that year.

(2) The income is treated as relevant foreign income of the individual.

(3) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis)—

(a) any consideration obtained on the disposal of the asset is treated as deriving from the income, and

(b) unless the consideration so obtained is of an amount equal to or exceeding the market value of the asset, the asset is treated as deriving from the income.

(4) In paragraph (3)—

(a) “the asset” means the asset the disposal of which causes the income to be treated as arising, and

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