HM Revenue & Customs has published new draft guidelines on the tests which they will want satisfied if an overseas firm – such as a hedge fund or other alternative fund – is advised by a manager based in the UK.
Currently, provided they meet certain criteria, profits earned by UK investment managers on behalf of non-resident clients are exempt from UK tax provided the fund and the UK adviser satisfy the necessary conditions.
In particular the manager must act for the non-resident client in an independent capacity.
The previous guidelines set out a list of circumstances under which the investment manager was considered to be independent.
But in the new proposals HMRC says that having considered guidance from the OECD they will have regard to ‘all the facts pertaining to the UK investment manager, the non-resident entity and the arrangements between them’ and that no one circumstance will be treated as decisive.
John Riva, tax partner at KPMG and president of the Jersey Taxation Society, said this change would bring greater uncertainty.
He also highlighted changes to another test, the customary remuneration test, which is likely to mean that UK managers will have to prove that their remuneration from offshore funds is ‘at arm’s length rates’.
