AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

AIMA Welcomes HMRC Revised Statement of Practice on IME

20 July 2007

London, 20 July 2007: The Alternative Investment Management Association (AIMA), the leading global hedge fund and alternative investment industry association, welcomed the release today of the HMRC Revised Statement of Practice on the Investment Manager Exemption (IME).

The IME is vital to the UK hedge fund industry as it enables offshore funds to trade in the UK in certain investments through a UK-based investment manager and without the risk of UK taxation - allowing UK investment managers to be globally competitive. 

A key concern of managers has been certainty that they continue to meet IME conditions as the hedge fund industry has developed new types of investment transactions and arrangements.  The Revised Statement of Practice (SP) is the result of a cooperative effort between HMRC and the industry over more than twelve months and reflects HMRC’s stated commitment to improving the IME, to meet market developments by providing greater flexibility and clarity for managers and by expanding the scope of exempt activities. The revised SP also takes account of legislative changes affecting corporate non-residents made in the Finance Act 2003.

Key points in the Revised SP are:

1. New investment transactions now included in the scope of the IME include

  • carbon emission credits;
  • placing of money at interest, including structuring and negotiating terms and participation as a syndicate member - but not taking a lead in arranging or originating a loan or managing such a loan - are also now investment transactions and fees etc for such services are taxable;
  • transactions in physical commodities and land remain excluded but futures and options in commodities are included provided no physical delivery occurs and futures and options involving certain indices of land are included.

2. A minor or inadvertent non-qualifying transaction (determined as such by HMRC by looking at all the circumstances) will not cause the IME to be failed provided the profit is charged to UK tax.

3. The ‘independent capacity’ test is now a hierarchical test and a fund will be considered independent if it is either ‘widely held’ or ‘actively marketed’; if neither test is met, other factors are considered.

4. Treatment of master-feeder structures is clarified:

  • deferred fees are taxable when earned, rather than when paid
  • profit allocations are included as fees (thus recognising the commercial reasons for these arrangements in the case of US funds).

5. The ‘customary rate’ test:

  • confirmation that an ‘arm’s length’ rate will be determined on the basis of net rather than gross fees earned;
  • acknowledgement of genuine commercial reasons for rebated, reduced or zero fee arrangements;
  • the importance of appropriate documentation to support the chosen transfer pricing methodology.

The revised SP has immediate effect except that for those who must make changes to become compliant, the original SP may be applied until 31st December 2009.

Commenting on the new provisions, AIMA’s Director, Mary Richardson said, “AIMA considers the revisions as helpful for the continuing competitiveness of UK-based hedge fund management.  HMRC has maintained close dialogue with the industry and has addressed many of its concerns.”

- Ends -

For further information, please contact:

Eoin Brophy
Partner
Hume Brophy Communications
Tel: +44 (0)20 7499 8736
Mob: +353 86 851 5477
E:
eoin.brophy@humebrophy.com

Evan DeBarra
Hume Brophy Communications
Tel: +020 7499 8736
Mob: +44 79 4642 2216
E:
evan.debarra@humebrophy.com


Editors’ Notes

1. About AIMA

As the only truly representative global hedge fund association, AIMA, the Alternative Investment Management Association, has almost 1200 corporate members worldwide, based in 47 countries.

Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting services and fund administrators.  They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators, worldwide.

AIMA is a dynamic organisation that reflects its membership’s interests and provides them with a vibrant global network.

AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website www.aima.org

 
 
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