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Eversheds comments on UK tax consultation launch

Posted: 29 July 2008

Today marked the launch of three consultations which aim to improve the tax status of UK investment funds.

Camilla Spielman, senior associate in the tax team at international law firm Eversheds, comments on the launch of these consultations and the impact this will have on UK's position against Luxembourg and Ireland: "Many participants in the open-ended investment funds industry have become increasingly concerned over recent years about the UK industry's competitive position as against Luxembourg and Dublin. The key factors in this have been regulatory and tax.

"The fundamental difference in tax regimes between the UK and the offshore jurisdictions is that their open-ended investment funds are exempt from tax. UK open-ended investment funds are subject to a special favourable tax regime. Though this can give investors in internationally invested funds a benefit (because the funds access the UK's very substantial double tax treaty network), increasingly it causes complications and brings disadvantages. For example, it can be difficult to launch and manage a fund that is heavily invested in derivatives, or that may be close to the investment /trading border.

There can also be difficulties for pension funds and other gross investors who do not want to invest in a fund that itself is subject to tax. Commercially, an exempt fund is easier to market internationally. It is important for a fund to be widely attractive, to give the best chance of the fund being economic and of obtaining economies of scale.
"Until this year, the industry appeared split on what it wanted in terms of fund tax. This has changed, allowing HM Treasury to put forward the preliminary proposals for an optional tax-exempt fund tax regime. This is a great step forward, and to be welcomed. It is important that the proposals are or are made workable in practice, not putting, for example, overly onerous requirements on managers in relation to withholding tax."

 

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