After regulation 14 (treatment of deficits on loan relationships) of the principal Regulations insert—

“Authorised investment funds having interests in offshore non-reporting funds

Interests in offshore non-reporting funds: general14ZA.

(1)

Regulation 14ZB applies if—

(a)

an authorised investment fund disposes of an asset which is an interest in a non-reporting fund (“the asset”); and

(b)

the conditions in paragraph (2) are satisfied for the period beginning with the date on which the authorised investment fund acquired the asset and ending on the date of the disposal.

(2)

The conditions are that—

(a)

the authorised investment fund has access to the accounts of the non-reporting fund,

(b)

the authorised investment fund had sufficient information about the non-reporting fund referred to in paragraph (1)(a) to enable it to prepare computations of reportable income for the non-reporting fund for every accounting period which, if the non-reporting fund were a reporting fund, would be a reporting period ending within the period mentioned in paragraph (1)(b),

(c)

the authorised investment fund has prepared such computations, and

(d)

any excess of the authorised investment fund’s share of the reportable income of the non-reporting fund over the authorised investment fund’s share of the distributions made by the non-reporting fund is included in the amount available for income allocation by the authorised investment fund for each reporting period of the authorised investment fund which falls within the period mentioned in paragraph (1)(b).

(3)

An authorised investment fund has an interest in a non-reporting fund if and to the extent that it has an interest in such a fund for the purposes of the Offshore Funds Regulations.

(4)

For the purposes of the computations mentioned in paragraph (2)(b), regulation 80 of the Offshore Funds Regulations applies if (and only if) the non-reporting fund is a UCITS fund.

(5)

In this regulation, “UCITS fund” has the same meaning as in regulation 12 of the Offshore Funds Regulations and “reporting period” has the same meaning as in regulation 91 of those Regulations.

Treatment of disposal of interest in non-reporting fund14ZB.

No tax shall be charged on the authorised investment fund under regulation 17 of the Offshore Funds Regulations on the disposal by the authorised investment fund of an asset which is an interest in a non-reporting fund at the time of the disposal.

Treatment of interest in non-reporting fund: cases where the conditions in regulation 14ZA(2) would not be satisfied14ZC.

(1)

This regulation applies in relation to an asset of an authorised investment fund (“the asset”) which—

(a)

is an interest in a non-reporting fund, but

(b)

in relation to which the conditions in regulation 14ZA(2) would not (apart from this regulation) be satisfied for the whole of the period specified in regulation 14ZA(1)(b) in relation to the asset.

(2)

Paragraph (4) applies if the authorised investment fund, in relation to the asset, reasonably expects to satisfy the conditions in regulation 14ZA(2) for the period beginning with a date to be determined in accordance with paragraph (3) (“the deemed start date”) and ending on the date of the disposal of the asset.

(3)

The deemed start date is a date to be determined by the authorised investment fund but which must not be earlier than 6th March 2011.

(4)

The authorised investment fund is treated for all purposes (including for the purposes of determining the beginning of the period mentioned in regulation 14ZA(1)(b)) as if it had, on the deemed start date, disposed of the asset (and not satisfied the conditions in regulation 14ZA(2)) and immediately reacquired the asset for a consideration equal to its market value on the deemed start date.

(5)

The authorised investment fund must notify the Commissioners of the deemed start date by making an appropriate entry in its tax return for the accounting period in which the deemed start date falls.”.