HMRC published on 28 February 2011, for industry comment, draft legislation amending the Offshore Funds (Tax) Regulations 2009, which govern the tax rules on reporting funds.
In addition to provisions published in draft on 20 December 2010, the draft regulations now incorporate proposed changes to the rules for reporting funds, including:
- adjustments to the reported income per unit, on the basis of accounting income, for funds that do not operate equalisation: (the draft regulations set out the formula for calculating the adjustment and rules governing the computation period and transitional provisions are also included);
- an amendment permitting offshore funds to access the trading and investment “white list”;
- alterations to the genuine diversity of ownership rules to allow it to apply at sub-fund level;
- an extension of time limits for application for entry into and withdrawal from the reporting funds regime;
- new rules for calculating the reported income of a transparent reporting fund; and
- clarification of the scope of reporting requirements where audited accounts are not available.
For non-reporting funds that are invested at least 90 per cent by asset value in unlisted trading companies, gains realised on the disposal of the shares will be exempt from the tax charge on offshore income gains.
In relation to fiscally transparent funds, corporate investors will be able to look through all transparent offshore funds and the loan relationship rules will apply to the underlying assets where relevant.
HM Government intends to make the regulations by late April 2011 and they will come into force before the end of May 2011.