Sarah
McCarthy-Fry: I thank the hon. Members for Fareham and for
Taunton for their contribution to this debate, and I am glad that they
think that the regulations are relatively uncontentious, except for the
issues raised by the very proper questions that have been asked. I
have the answer to the question put by the hon. Member for Worthing,
West, but he has gone. I will state it for the record so that he can
find it out from Hansard. “Material interest in an
offshore fund” refers to previous legislation in chapter 5, part
17, of the Income and Corporation Taxes Act 1988. I am sure that he
will scurry to get that legislation and check it.
One of the
main issues arising from the comments of the hon. Members for Fareham
and for Taunton was the timing and why it has taken so long to publish
the regulations. Anyone who has studied this subject will agree that it
is complex, and we have carried out extensive consultations. I thank
the industry for the great number of useful comments that we received
in response to the December 2008 draft of the regulations and the
relevant Finance Bill. We delivered the new definition in the Finance
Act 2009. Subsequently, we managed to publish the draft regulations on
4 September, so we could give the industry advance sight of them. The
issue is complex, but we have been able to use the time to make changes
in response to a number of industry comments and to adjust the draft
regulations to take account of the definition in the Finance Act
2009.
Mr.
Hoban: Is the Minister saying that the statutory
instrument before us has been changed since it was laid before the
House on 4
September?
Sarah
McCarthy-Fry: There are, if I can find them, three tiny
technical amendments, but it is basically the same draft regulation. We
will continue to consult with the industry, and we recognise that
issues are likely to come to light as we go along. We will
continue to consult with the industry and will amend the regulations
where it is deemed necessary, particularly in relation to the
transitional provisions as the new regime comes
forward.
Mr.
Hoban: Is the Minister saying that she recognises that the
statutory instrument is not as perfect as it could have been? Where
there are issues, will she give some form of concession to get around
the problems in the statutory instrument, or will the industry have to
work within the legal framework set out in
it?
Sarah
McCarthy-Fry: At the moment, we will work within the legal
framework set out in the statutory instrument, but we want to be
flexible with the industry and will bring amendments if major issues
arise. The guidance, of course, is still being developed. I will come
to that point, which has been raised. On 4 September, we published the
regulations in draft on the HMRC website; the draft instrument was laid
on 19 October, and there have been no changes since
then. Mr.
Charles Walker (Broxbourne) (Con): On what date was the
statutory instrument laid before the House in its original
form?
Sarah
McCarthy-Fry: I am sorry; I thought I had just said that.
Maybe the hon. Gentleman was not listening. It was 19
October.
Mr.
Walker: That was the last date on which it was
changed.
Sarah
McCarthy-Fry: No, that is the date when the instrument was
laid before the House. The draft regulations were put on the HMRC
website. Another
question from the hon. Member for Fareham was about whether HMRC has
sufficient capacity to process applications. We welcome any new funds
that apply with a generous transitional period; given that varying
accounting periods are also involved, we hope that applications will
spread out over the transitional period. A centralised HMRC team based
in Sheffield is trained specifically to deal with offshore fund
applications, and we are confident that it will be able to
cope. Questions
were asked about guidance. The guidance has been published as a draft
for consultation. When possible, HMRC is happy to make it clearer
following the consultation response on particular
issues. Another
question was raised regarding the white list. Under the regulations,
certain UK-authorised investment funds and offshore equivalent funds
can qualify to report income using the white list. Other funds in the
UK, such as unauthorised unit trusts or authorised funds that do not
satisfy a genuine diversity of ownership test, do not qualify to use
the white list. It would be neither fair nor appropriate to base the
taxation of UK investors in offshore funds on a particular tax
treatment that would be unavailable to an investor in a similar UK
fund, so it is sensible that offshore funds have to satisfy similar
conditions before qualifying to apply the white list to the
calculations of reported income. We are continuing to consult with the
industry to determine whether the definition can be expanded to include
other types of offshore funds that are non-UCITS—that is, that
do not involve undertakings for collective investments in transferable
securities.
Mr.
Hoban: Is that not a sign of the problem in which the
Government have found themselves? Here we are at the end of October
discussing a statutory instrument that will come into force on 1
December, yet discussions are still going ahead with the industry to
clarify what it will mean in practice and how it will be implemented by
HMRC. Does not the Minister regret that the instrument was not
published prior to the summer, as was originally promised to the fund
management industry?
Sarah
McCarthy-Fry: The important thing is that we get it right.
Had it been published earlier, we would still have been consulting with
the industry at the time. Incidentally, I need to correct a statement
that I made earlier: the regulations were laid before the House
on 13 October, not 19 October.
The
equalisation provision was included at the request of the industry and
was based closely on a provision in the existing legislation that
applies to distributing funds, but we have received some
representations suggesting that it might not work as fully as intended
or might unintentionally apply to funds not intending to operate
equalisation. I have asked my officials to examine urgently whether
that is the case and whether we can make improvements on
that.
I was asked
how many UK investors will be affected and what revenue will be raised.
The provision is not intended to be a revenue-raising measure, but to
be tax neutral. I was also asked how often the Government
will review regulations and by what mechanisms. In the early stages they
will be kept under review constantly to enable early amendment where
that would prove necessary or beneficial. I am afraid that I cannot
answer the question that the hon. Member for Fareham originally asked
about how many distributing funds there are, but I will undertake to
write to him when we can get that information. The industry
was extremely helpful in commenting on our regulations. As I said, I
have asked officials to give urgent attention to any issues that are
identified through the transitional process, to ensure smooth
implementation. The generous transitional period set out in the
provisions will give distributing funds time to adapt, so I hope that
the impact on the industry, with which we are in deep consultation,
will be
minimal. Question
put and agreed
to. Resolved, That
the Committee has considered the Offshore Funds (Tax) Regulations
2009. 5.8
pm Committee
rose.
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