Taxman intensifies fund manager scrutiny

Taxman intensifies fund manager scrutiny

New draft guidance for fund managers could see funds losing tax-free status

A number of investment managers could see
the profits from funds based offshore lose their tax exempt status if they fail
to meet certain criteria.

New draft guidelines have been issued by HM Revenue
& Customs
specifying the tests investment managers will have to satisfy
in order to qualify for the investment manager exemption.

John Neighbour, a KPMG tax partner, said the new
regulations would require most investment managers to adapt their arrangements
in order to maintain their tax exempt status.

‘These moves are the latest steps in the increasing level of scrutiny HMRC is
applying to the fund management industry,’ said Neighbour. ‘There is a
perception that some fund managers have played a little fast and loose, and HMRC
is tightening up the rules in response.’

The draft regulations will introduce a ‘customary remuneration test’ and an
‘independence test’.

The ‘customary remuneration test’ will require an offshore fund manager to
demonstrate that the remuneration received for this management service is not
less than ‘customary’ for that class of business.

This has been a notoriously grey area, but HMRC has said that it will make
its decision based on the transfer pricing concept of arms length pricing.

Neighbour said the arms length method would bring certainty to the definition
of ‘customary’, but warned that the method would make it more difficult to meet
the requirments.

‘Applying transfer pricing methodology means that UK fund managers will need
to ensure that they can demonstrate all amounts paid to parties related to their
funds are at arm’s length rates,’ Neighbour said.

The ‘independence test’, meanwhile, could introduce more uncertainty. The
previous guidance listed circumstances that would satisfy the independence test.
The new draft guidance, however, now states that no one factor will be treated
as decisive in determining whether the manager and the fund are independent.

The industry has until 12 January next year to comment on the draft.

Further reading:

Read
the full document here

Tax complexity costs UK jobs

Tories to abolish tax on shares

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource