PART 3REPORTING FUNDS AND THE TREATMENT OF PARTICIPANTS IN REPORTING FUNDS
CHAPTER 6TRANSACTIONS BY CERTAIN REPORTING FUNDS WHICH ARE NOT TREATED AS TRADING
Conditions to be met by reporting funds for this Chapter to apply
Introductory73
1
A reporting fund meets the conditions for this Chapter to apply in respect of a period of account if it meets—
a
the equivalence condition (see regulation 74), and
b
the genuine diversity of ownership condition (see regulations 75 and 76).
2
In this Part a “diversely owned fund” means a reporting fund in respect of which the conditions mentioned in paragraph (1) are met for a period of account.
The equivalence condition74
1
The equivalence condition is met if the fund meets condition A F2, B or C throughout the period of account.
2
3
Condition B is that the fund is a UCITS fund.
F14
Condition C is that the fund—
a
is constituted in another EEA state and authorised by the competent authority in that state to market to retail or professional investors, and
b
is required either by the competent authority in that state or by other binding arrangements to limit its borrowing and its exposure under derivative contracts and forward transactions to 100% of its net asset value.
5
In paragraph (4), the competent authority in an EEA state is the authority designated in accordance with Article 97 of Council Directive 2009/65/EC in relation to that fund.
The genuine diversity of ownership condition75
1
The genuine diversity of ownership condition is met if the fund meetsF4,or, in relation to a fund constituted by a class of interests in the main arrangements, the main arrangements meet, conditions A to C throughout the period of account.
C3C42
Condition A is that the fund produces documents, available to investors and to HMRC, which contain—
a
a statement specifying the intended categories of investor,
b
an undertaking that interests in the fund will be widely available, and
c
an undertaking that interests in the fund will be marketed and made available in accordance with the requirements of paragraph (4)(a).
3
Condition B is—
a
that the specification of the intended categories of investor do not have a limiting or deterrent effect, and
b
that any other terms or conditions governing participation in the fund do not have a limiting or deterrent effect.
4
Condition C is—
a
that interests in the fund must be marketed and made available—
i
sufficiently widely to reach the intended categories of investors, and
ii
in a manner appropriate to attract those categories of investors, and
b
that a person who falls within one of the intended categories of investors can, upon request to the manager of this fund, obtain information about the fund and acquire units in it.
F35
A fund also meets the genuine diversity of ownership condition if—
a
an investor in the fund is an offshore fund, an open-ended investment company or an authorised unit trust scheme (“the feeder fund”),
b
conditions A to C are met in relation to the fund after taking into account—
i
the fund documents relating to the feeder fund, and
ii
the intended investors in the feeder fund, and
c
the fund and the feeder fund have the same manager (or proposed manager).
The genuine diversity of ownership condition: further provisions76
1
For the purposes of regulation 75(3) a limiting or deterring effect means an effect which—
a
limits investors to a limited number of specific persons or specific groups of connected persons, or
b
deters a reasonable investor falling within one of the intended categories of investor from investing in the fund.
2
Condition C (see regulation 75(4) shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—
a
the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and
b
a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity.
3
For the purposes of this regulation—
a
sections 993 and 994 of ITA 2007 (connected persons) apply in the case of a person chargeable to income tax, and
b
section 839 of ICTA M1 (connected persons) applies in the case of a person chargeable to corporation tax.
Clearances in relation to the equivalence and genuine diversity of ownership conditions
Who may apply for clearance77
1
The following may apply for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition—
a
the manager of an eligible offshore fund;
b
the manager of a non-reporting fund who makes an application under regulation 52.
2
If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the applicant may apply for clearance that the fund will meet the equivalence condition and the genuine diversity of ownership condition on its establishment.
Procedure for obtaining clearance78
1
The relevant person specified in regulation 77 (the “relevant person”) must apply in writing to HMRC for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition.
2
A document submitted in accordance with paragraph (1) must be accompanied by the documents specified in regulation 75(2).
3
HMRC may require the relevant person to provide further particulars if HMRC believe that full particulars of the fund have not been provided.
4
HMRC must notify the relevant person within 28 days beginning with the day on which HMRC receive the documents mentioned in paragraphs (1) and (2) (or, as the case may be, the further particulars mentioned in paragraph (3))—
a
giving clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition,
b
giving that clearance subject to conditions, or
c
refusing to give that clearance.
Circumstances in which clearance may not be relied upon79
1
An offshore fund (and investors in that fund) may not rely on a clearance given under regulation 78 if any of conditions A to D is met.
2
Condition A is that at the beginning of the first period of account of the fund to which the clearance relates (and at the beginning of each subsequent period of account), a relevant statement in the instrument constituting the fund or in its prospectus in issue for the time being is not in accordance with a relevant statement in the documents considered by HMRC before giving clearance.
3
Condition B is that the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulations 75 and 76).
4
Condition C is that the fund acts or is operated in contravention of a relevant statement in the instrument constituting the fund or in its prospectus.
5
Condition D is that the documents specified in regulation 75(2) are materially amended.
6
Condition D does not apply if the relevant person specified in regulation 77 has obtained a clearance given under regulation 78 which applies to the documents in their amended form.
7
For the purposes of condition D, a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the equivalence condition or the genuine diversity of ownership condition in relation to any period of account.
Investment transactions carried out by diversely owned funds
Treatment of investment transactions carried out by diversely owned fundsC1C280
1
This regulation applies if a diversely owned fund carries out an investment transaction in an accounting period.
2
The investment transaction is treated as a non-trading transaction.
F83
For the purposes of these Regulations an “investment transaction” is an investment transaction specified by regulation 2 of the Investment Transactions (Tax) Regulations 2014.
Meaning of “investment transaction”F781
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Meaning of “relevant contract”: generalF782
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Meaning of “relevant contract”: optionsF783
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Meaning of “relevant contract”: futuresF784
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Options and futures: further provisionsF785
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Meaning of “relevant contract”: contracts for differencesF786
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Interpretation of regulation 81(c)F787
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Meaning of “units in a collective investment scheme”F788
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Meaning of “transaction in a carbon emission trading product”F789
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