As part of the UK Budget 2013, the UK Government has announced that it intends to launch two public consultations relating to tax matters which will be of interest to the international investment management industry.
Tax avoidance through the use of partnerships
In response to perceived avoidance over the last few years, in the UK Autumn Statement 2012 the UK Government announced that it was considering taking a closer look at the taxation of partnerships (including limited liability partnerships (“LLPs”)).
The UK Government has now confirmed its intention to launch a public consultation in relation to the taxation of partnerships and further announced that a consultation document, containing detailed proposals, would be released in spring 2013, with the aim of introducing new legislation in the UK Finance Bill 2014.
We understand that the consultation will focus on two areas in particular:
- Treating partners as employees: removing the basic presumption that partners in LLPs are self-employed, with a view to allowing the UK Government greater scope to determine whether an individual should be seen as a partner or employee; and
- Profit allocations: countering certain profit allocations by partnerships and LLPs including a company, trust or similar vehicle in order to secure tax advantages.
Depending on the specific form of any resulting legislation, the consultation could potentially result in the need to reevaluate: (i) the rationale for, and the terms relating to, offering partnership interests in an LLP; and (ii) the basis upon which LLP profits are allocated. The results of the consultation may therefore be of particular interest to investment managers whose arrangements involve the use of a UK LLP. This is an issue which we will be closely following over the coming months.
As has already been widely publicized, the Finance Bill 2013 will also introduce a General Anti-Abuse Rule (“GAAR”). The GAAR is intended to generally counteract tax advantages arising from abusive tax avoidance schemes and will enter into force at Royal Assent of the Finance Bill 2013, which is expected around July 2013.
Extending the scope of the UK investment manager exemption
The UK investment manager exemption (“IME”) is a safe harbor which allows a UK-based investment manager to provide investment advice to, and to carry out transactions on behalf of, a non-UK fund without the fund acquiring a taxable presence in the United Kingdom.
The IME, however, only applies to profits of a non-UK fund that are derived from “investment transactions” carried out by a UK-based investment manager on behalf of the non-UK fund. The UK Government publishes a list of the types of transaction that are considered to be “investment transactions” for the purposes of the IME.
The UK Government has now confirmed its intention to launch a public consultation in relation to extending the concept of “investment transactions” to potentially cover other investments, including traded life policy investments and certain forms of carbon credit which are not currently covered.
As both types of transaction are of increasing interest to certain investment funds, this would be a welcome extension of the concept of “investment transactions.”