Offshore funds changes: our views

The Government's consultation on proposed changes to the offshore funds tax regime closed today (9 January). Details of the proposals can be found in our previous article here: Offshore funds proposals .

We have responded to the consultation, highlighting areas of agreement and, more importantly, areas that require more consideration before legislation is brought forward.

Our key concerns are:

1. The move to a characteristics based definition of 'offshore fund' will lead to uncertainty in its application and does not currently capture the essence of open-ended structures properly.
2. Funds should be allowed to continue obtaining Reporting Fund status at share class level.
3. It will be necessary to publish guidance on what constitutes a 'genuine commercial purpose' for a fund as soon as possible.
4. The requirement for an offshore fund's accounts to be prepared in an 'acceptable' GAAP may increase the compliance burden on funds, rather than reduce it, for little benefit.
5. It will make commercial sense for funds with minimal income to be able to access a de minimis limit within which no income would need to be reported to investors.
6. The rules for Reporting Funds investing in Non-Reprting Funds are somewhat unclear in that investors should be able to take account of falls in value of underlying Non-Reporting Funds if they are to be taxed on any increases in value.
7. The Government has suggested that if a fund changes status, it will be necessary for investors to divest and reinvest. Instead, we would like to see a deemed sale and repurchase mechanism included in the final rules.

We will be discussing these changes further, and hearing from BDO colleagues in Guernsey and Jersey at our forthcoming breakfast seminar on 5 February. If you would like to receive an invitation to this or a copy of our response, please contact:

Angela Foyle, Tax Partner
T: 020 7893 2475
E: angela.foyle@bdo.co.uk