On October 9, the UK Treasury published a discussion paper setting out its plans to modernize the UK tax regime for offshore funds and strengthen the existing UK anti-avoidance rules. The proposals introduce a new framework for offshore funds and the tax treatment of UK investors based on funds being classified as “Reporting Funds” rather than “Distributing Funds” as they are currently termed. The proposals includes: (i) changing the definition of offshore funds so as to be based on the characteristics of the fund, (ii) enabling funds to apply in advance for treatment as “Reporting Funds” instead of the current regime where an application to be a “Distributing Fund” must be made at the end of each year, (iii) the removal of percentage investment restrictions and limits on the number of layers into which a “Reporting Fund” may invest.

The deadline for comments is January 9, 2008.