Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 26 — Offshore funds
407


“conversion arrangement” means a conversion arrangement
made under the rules or practice of Lloyd’s;

“successor member” has the meaning given by the rules or
practice of Lloyd’s;

“syndicate capacity”, in relation to a member, means an asset
5
comprising the rights of the member under a syndicate in
which he participates.
Application of this Schedule
11    (1)
Paragraphs 2 and 3 above (and the other provisions of this
Schedule so far as relating to those paragraphs) have effect in
10
relation to syndicate capacity disposals (within the meaning of
Part 1 of this Schedule) made on or after 6th April 2004.
      (2)
Paragraph 4 above (and the other provisions of this Schedule so
far as relating to that paragraph) have effect in relation to ATF
disposals (within the meaning of paragraph 4 above) made on or
15
after 6th April 2004 (even if the syndicate capacity disposal
mentioned in paragraph 4 above was made before that date).
      (3)
Paragraph 7 above (and the other provisions of this Schedule so
far as relating to that paragraph) have effect in relation to
syndicate capacity disposals (within the meaning of Part 2 of this
20
Schedule) made on or after 6th April 2004.”.
Schedule 26
Section 135

Offshore funds
Computation of UK equivalent profits: creditor relationships
1     (1)
In paragraph 5(3) of Schedule 27 to the Taxes Act 1988 (offshore funds:
25
assumptions to be made in computing UK equivalent profits), after
paragraph (c) insert—

“; and
(d)
that the provisions of the Corporation Tax Acts relating to
profits, gains or losses arising from a creditor relationship
30
(within the meaning of Chapter 2 of Part 4 of the Finance
Act 1996) apply as if the offshore fund were an authorised
unit trust;”.
      (2)
Paragraph 3 of Schedule 10 to the Finance Act 1996 (c. 8) (assumptions to be
made in relation to creditor relationships) shall cease to have effect.
35
      (3)
In relation to a fund established on or before the day on which this Act is
passed, this paragraph only has effect if an election that it should have effect
has been made by or on behalf of the fund.
      (4)
Any such election—
(a)
must be made by notice to an officer of the Board, in such form and
40
within such time as the Board may determine, and
(b)
is irrevocable.

Finance Bill
Schedule 26 — Offshore funds
408

      (5)
For the purpose of determining the United Kingdom equivalent profits of an
offshore fund for the first account period of the fund in relation to which this
paragraph has effect—
(a)
any profits, gains or losses arising from a creditor relationship that
were taken into account in determining the United Kingdom
5
equivalent profits of the fund for the preceding account period shall
be disregarded, and
(b)
any profits, gains or losses arising from a creditor relationship that—
(i)
arose in, or in respect of, the preceding account period, but
(ii)
were not taken into account in determining the United
10
Kingdom equivalent profits of the fund for that period,

shall be taken into account.
      (6)
In this paragraph—
“creditor relationship” has the same meaning as in Chapter 2 of Part 4
of the Finance Act 1996; and
15
“United Kingdom equivalent profits” has the meaning given in
paragraph 5 of Schedule 27 to the Taxes Act 1988.
Computation of UK equivalent profits: derivative contracts
2     (1)
In paragraph 5(3) of Schedule 27 to the Taxes Act 1988 (offshore funds:
assumptions to be made in computing UK equivalent profits), after
20
paragraph (d) (inserted by paragraph 1 above) insert—

“and
(e)
that the provisions of the Corporation Tax Acts relating to
profits or losses arising from a derivative contract (within
the meaning of Schedule 26 to the Finance Act 2002) apply
25
as if the offshore fund were an authorised unit trust.”
      (2)
Paragraph 35 of Schedule 26 to the Finance Act 2002 (c. 23) (assumptions to
be made in relation to derivative contracts) shall cease to have effect.
      (3)
In relation to a fund established on or before the day on which this Act is
passed, this paragraph only has effect if an election that it should have effect
30
has been made by or on behalf of the fund.
      (4)
Any such election—
(a)
must be made by notice to an officer of the Board, in such form and
within such time as the Board may determine, and
(b)
is irrevocable.
35
      (5)
For the purpose of determining the United Kingdom equivalent profits of an
offshore fund for the first account period of the fund in relation to which this
paragraph has effect—
(a)
any profits or losses arising from a derivative contract that were
taken into account in determining the United Kingdom equivalent
40
profits of the fund for the preceding account period shall be
disregarded, and
(b)
any profits or losses arising from a derivative contract that—
(i)
arose in, or in respect of, the preceding account period, but
(ii)
were not taken into account in determining the United
45
Kingdom equivalent profits of the fund for that period,

shall be taken into account.
      (6)
In this paragraph—

Finance Bill
Schedule 26 — Offshore funds
409

“derivative contract” has the same meaning as in Schedule 26 to the
Finance Act 2002;
“United Kingdom equivalent profits” has the meaning given in
paragraph 5 of Schedule 27 to the Taxes Act 1988.
Treatment of umbrella funds and funds comprising more than one class of interest
5
3
At the beginning of Chapter 5 of Part 17 of that Act (offshore funds) insert—
“Meaning of offshore fund
756A   General definition of offshore fund
(1)
In this Chapter references to an offshore fund are to a collective
investment scheme constituted by—
10
(a)
a company that is resident outside the United Kingdom, or
(b)
a unit trust scheme the trustees of which are not resident in
the United Kingdom, or
(c)
arrangements not falling within paragraph (a) or (b) taking
effect by virtue of the law of a territory outside the United
15
Kingdom and which under that law create rights in the
nature of co-ownership (without restricting that expression
to its meaning in the law of any part of the United Kingdom).
(2)
Subsection (1) has effect subject to—

section 756B (treatment of umbrella funds), and
20

section 756C (treatment of funds comprising more than one
class of interest).
(3)
In this section “collective investment scheme” has the meaning given
by section 235 of the Financial Services and Markets Act 2000.
756B   Treatment of umbrella funds
25
(1)
In this Chapter, an “umbrella fund” means an offshore fund—
(a)
which provides arrangements for separate pooling of the
contributions of the participants and the profits or income
out of which payments are made to them; and
(b)
under which the participants are entitled to exchange rights
30
in one pool for rights in another;

and references in this Chapter to a part of an umbrella fund are to
such of the arrangements as relate to a separate pool.
(2)
For the purposes of this Chapter (except subsection (1))—
(a)
each part of an umbrella fund shall be regarded as a separate
35
offshore fund, and
(b)
the umbrella fund as a whole shall not be regarded as an
offshore fund.
(3)
In this Chapter, in relation to a part of an umbrella fund—
(a)
a reference to the assets of an offshore fund is to such of the
40
assets of the umbrella fund as under the arrangements form
part of the separate pool to which that part of the umbrella
fund relates;
(b)
a reference to the income of an offshore fund is to the income
arising from those assets;
45

Finance Bill
Schedule 26 — Offshore funds
410

(c)
a reference to a person having an interest in an offshore fund
is to a person for the time being having an interest in that
separate pool; and
(d)
a reference to an offshore fund being a non-qualifying fund
shall be read in relation to times before the coming into force
5
of this section as a reference to the umbrella fund being a non-
qualifying fund.”.
756C   Treatment of funds comprising more than one class of interest
(1)
For the purposes of this Chapter where there is more than one class
of interest in an offshore fund (the “main fund”)—
10
(a)
each class of interest shall be regarded as a separate offshore
fund, and
(b)
the main fund shall not be regarded as an offshore fund.
(2)
In this section, references to a class of interest in an offshore fund do
not include—
15
(a)
a part of an umbrella fund which is regarded as an offshore
fund by virtue of section 756B, or
(b)
a class of interest in an offshore fund which by virtue of
section 759(5), (6) or (8) is not a material interest in the fund.
(3)
In this Chapter, in relation to a class of interest in an offshore fund—
20
(a)
a reference to the assets of an offshore fund is to the assets of
the main fund;
(b)
a reference to the income of an offshore fund is to such of the
income of the main fund as is attributable to interests of that
class under the arrangements constituting the main fund;
25
(c)
a reference to a person having an interest in an offshore fund
is to a person for the time being having an interest of that
class; and
(d)
a reference to an offshore fund being a non-qualifying fund
shall be read in relation to times before the coming into force
30
of this section as a reference to the main fund being a non-
qualifying fund.”.
4     (1)
Section 757 of that Act (disposal of material interests in offshore funds) is
amended as follows.
      (2)
In subsection (1)(b) for the words from “the company or unit trust scheme”
35
to the end substitute “the interest was a material interest in a non-qualifying
offshore fund”.
      (3)
In subsection (5)—
(a)
for the words from “if the company that is company A” to the end of
the first sentence substitute “to the extent that—
40
(a)
the interest in the entity that is company A for the
purposes of that section that is exchanged is or was at
a material time an interest in a non-qualifying
offshore fund, and
(b)
the interest in the entity that is company B for those
45
purposes that is exchanged is not an interest in such a
fund.”;

Finance Bill
Schedule 26 — Offshore funds
411

(b)
in the second sentence, for the words in brackets substitute “(of
interests in or of an entity that are or were at a material time interests
in a non-qualifying offshore fund)”.
      (4)
In subsection (6)—
(a)
for the words from “so as to require persons” to the end of the first
5
sentence substitute “to the extent that—
(a)
the interest in the entity that is company A for the
purposes of that section that is exchanged is or was at
a material time an interest in a non-qualifying
offshore fund, and
10
(b)
the interest in the entity that is company B for those
purposes that is exchanged is not an interest in such a
fund.”;
(b)
in the second sentence, for the words in brackets substitute “(of
interests in or of an entity that are or were at a material time interests
15
in a non-qualifying offshore fund)”.
5
In section 758 of that Act (offshore funds operating equalisation
arrangements), after subsection (6) insert—
“(7)
The Treasury may make provision by regulations as to the
application of the provisions of this section in relation to—
20
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C.
(8)
Regulations under subsection (7) may—
25
(a)
make different provision for different cases, and
(b)
include such supplementary, incidental, consequential or
transitional provisions (including provisions modifying the
effect of other enactments) as appear to the Treasury to be
necessary or expedient.”.
30
6     (1)
Section 759 of that Act (material interests in offshore funds) is amended as
follows.
      (2)
Omit subsections (1) and (1A).
      (3)
In subsection (2) for “a company, unit trust scheme or arrangements”
substitute “an offshore fund”.
35
      (4)
In subsection (3) for the words from “the assets of” to the end substitute “the
assets of the fund”.
      (5)
In subsection (5) for “a company, scheme or arrangements” substitute “an
offshore fund”.
      (6)
In subsections (6) and (8)—
40
(a)
for “falling within subsection (1)(a) above” substitute “that is not
resident in the United Kingdom”;
(b)
after “material interest” insert “in an offshore fund”.
7     (1)
Section 760 of that Act (non-qualifying offshore funds) is amended as
follows.
45
      (2)
In subsection (10)—

Finance Bill
Schedule 26 — Offshore funds
412

(a)
in paragraph (a) for “falling within section 759(1)(a)” substitute “that
is not resident in the United Kingdom”, and
(b)
in paragraph (b) for “falling within section 759(1)(b)” substitute “of
which the trustees are not resident in the United Kingdom”.
      (3)
After subsection (10) insert—
5
“(10A)
For the purposes of this Chapter, in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C,
10

references to an account period of the offshore fund are to an account
period of the umbrella fund or the main fund (as the case may be).”.
8     (1)
Schedule 27 to that Act (distributing funds: supplementary) is amended as
follows.
      (2)
In paragraph 3(1) for “section 759(1)(b) or (c)” substitute “section 756A(1)(b)
15
or (c)”.
      (3)
In paragraph 11—
(a)
in sub-paragraph (2)(a) for “section 759(1)(a)” substitute “section
756A(1)(a)”;
(b)
in sub-paragraph (2)(b) for “section 759(1)(b)” substitute “section
20
756A(1)(b)”;
(c)
in sub-paragraph (2)(c) for “section 759(1)(c)” substitute “section
756A(1)(c)”.
      (4)
After paragraph 20 insert—
“Application of this Schedule in relation to umbrella funds and funds comprising
25
more than one class of interest
21    (1)
The Treasury may make provision by regulations as to the
application of the provisions of this Schedule in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
30
(b)
a class of interest in an offshore fund which is treated as an
offshore fund under section 756C.
      (2)
Regulations under this paragraph may—
(a)
make different provision for different cases, and
(b)
include such supplementary, incidental, consequential or
35
transitional provisions (including provisions modifying
the effect of other enactments) as appear to the Treasury to
be necessary or expedient.”.
9
In Schedule 28 to that Act (computation of offshore income gains) after

Finance Bill
Schedule 26 — Offshore funds
413

paragraph 8 insert—
“Part 3
Supplementary
Application of this Schedule in relation to umbrella funds and funds comprising
more than one class of interest
5
9     (1)
The Treasury may make provision by regulations as to the
application of the provisions of this Schedule in relation to—
(a)
a part of an umbrella fund which is treated as an offshore
fund under section 756B, or
(b)
a class of interest in an offshore fund which is treated as an
10
offshore fund under section 756C.
      (2)
Regulations under this paragraph may—
(a)
make different provision for different cases, and
(b)
include such supplementary, incidental, consequential or
transitional provisions (including provisions modifying
15
the effect of other enactments) as appear to the Treasury to
be necessary or expedient.”.
10
In section 587B of the Taxes Act 1988 (gifts of shares, securities and real
property to charities etc.) in subsection (9), for the definition of “offshore
fund” substitute—
20

““offshore fund” has the same meaning as in Chapter 5 of Part
17;”.
11
In section 212 of the Taxation of Chargeable Gains Act 1992 (c. 12) (annual
deemed disposal of holdings of unit trusts etc.) in subsection (6A)—
(a)
in paragraph (a), for “paragraphs (a) to (c) of subsection (1) of section
25
759” substitute “paragraphs (a) to (c) of subsection (1) of section
756A”;
(b)
in paragraph (b), for “that section” substitute “section 759 of that
Act”.
12    (1)
Schedule 10 to the Finance Act 1996 (c. 8) (loan relationships: collective
30
investment schemes) is amended as follows.
      (2)
In paragraph 7, for “paragraphs (b) and (c) of subsection (1) of section 759”
substitute “paragraphs (b) and (c) of subsection (1) of section 756A”.
      (3)
In paragraph 8 after sub-paragraph (7E) insert—
    “(7F)
In this paragraph “offshore fund” has the same meaning as in
35
Chapter 5 of Part 17 of the Taxes Act 1988 and references to the
assets of an offshore fund shall be construed in accordance with
that Chapter.”.
Investment conditions to be met by funds seeking certification as distributing fund
13    (1)
Section 760 of the Taxes Act 1988 (non-qualifying offshore funds) is
40
amended as follows.
      (2)
In subsection (3) omit paragraphs (b) to (d) and the word “or” preceding
paragraph (b).
      (3)
Omit subsections (4) to (7).