The Offshore Funds (Tax) Regulations 2009

• (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

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

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

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.

Contents of report to participants: non-transparent funds

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

92A

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

92B

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Funds which do not operate equalisation arrangements: computation period

92C

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Contents of reports to participants: transparent reporting funds

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.

Lengthy periods of account where full information not available

Equalisation amounts not treated as distributions

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.

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

• Option 1Under this option—the amount of any actual distributions to the participant in respect of the reporting period is reduced by the equalisation amount, andthe 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 2Under this option—the amount of any excess treated as additional distributions made to the participant is reduced by the equalisation amount, andthe 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).

Participants chargeable to income tax: corporate funds

Participants chargeable to income tax: other non-transparent funds

Participants chargeable to income tax: transparent funds

Participants chargeable to corporation tax

Exchanges and schemes of reconstruction

Exchange of interests of different classes

Adjustments where funds do not operate equalisation arrangements

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

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

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—

$$(AIU×RI/AI)×U$where—AIU is the sum of the accounting income per unit for all the computation periods in the reporting period,RI is the reportable income of the fund for the reporting period computed in accordance with this Chapter (ignoring this regulation), Chapter 6 of this Part and regulation 93,AI is the sum of accounting income for all the computation periods in the reporting period, andU is the number of units in the fund in issue at the end of the reporting period.$

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

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 1A new computation period must start—at the beginning of a reporting period, andimmediately after the end of a previous computation period.

• Rule 2A computation period must end—at the end of a reporting period, andat the end of a period in relation to which income is allocated to participants for distribution or accumulation.

• Rule 3If a reporting period consists of more than one computation period those periods must be of approximately equal length.

PART3A — ANNUAL PAYMENTS TO NON-RESIDENTS

Annual Payments – duty to deduct income tax

124A

• (1) An annual payment made to a participant which meets the conditions in paragraphs (2) to (6) is not a qualifying annual payment for the purposes of Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments and royalties).

• (2) The payment must be charged to income tax under Chapter 7 of Part 5 of ITTOIA 2005 (annual payments not otherwise charged).

• (3) The payment must be made in respect of the participant’s interest in an offshore fund.

• (4) The payment and the amount of the payment must be directly or indirectly referable to, and must not be more than, any management fees paid to the manager of the offshore fund in respect of the participant’s interest in the fund.

• (5) Any management fee must not exceed an amount representing a reasonable commercial amount in all the circumstances.

• (6) At the time the payment is made, the person making the payment must have reasonable grounds for believing that the participant is not resident in the United Kingdom.

Consequences of reasonable but incorrect belief

124B

• (1) This regulation applies if—

• (a) an annual payment is made to a participant without a sum representing income tax on the payment being deducted from it,

• (b) at the time the payment is made, the condition in regulation 124A(6) is met,

• (c) the payment would be a qualifying annual payment but for that condition being met, and

• (d) at the time the payment is made, the participant is resident in the United Kingdom.

• (2) Section 900 (deduction from commercial payments made by individuals) and section 901 (deduction from annual payments made by other persons) of ITA 2007 apply as if the payment were a qualifying annual payment.

Temporary non-residents

Regulation 23: supplementary

23A

• (1) Regulation 23(2) does not apply to an offshore income gain accruing on the disposal by the taxpayer of an asset if –

• (a) the asset was acquired by the taxpayer in the temporary period of non-residence,

• (b) it was so acquired otherwise than by means of a relevant disposal that by virtue of section 58, 73 or 258(4) TCGA 1992 is treated as having been a disposal on which neither a gain nor a loss accrued, and

• (c) the asset is not an interest created by or arising under a settlement.

• (2) Nothing in any double taxation relief arrangements is to be read as preventing the taxpayer from being chargeable to income tax in respect of any offshore income gains treated under regulation 23 as accruing to the taxpayer in the period of return (or as preventing a charge to that tax from arising as a result).

• (3) Nothing in any enactment imposing any limit on the time within which an assessment to income tax may be made prevents any assessment for the year of departure from being made in the taxpayer’s case at any time before the end of the second anniversary of the 31 January next following the year of return.

• (4) In this regulation—

• (a) “relevant disposal” has the meaning given in section 10AA(2) of TCGA 1992, and

• (b) “the year of departure” has the meaning given in paragraph 114 of Schedule 45 to the Finance Act 2013.

Application of section 13 of TCGA 1992

Treatment of other capital items and miscellaneous items