Income Tax PART 1 INTRODUCTION Preliminary provisions Citation, commencement and effect 1 1 These Regulations may be cited as the Offshore Funds (Tax) Regulations 2009 and shall come into force on 1st December 2009. 2 These Regulations have effect— a for the purposes of income tax— i for the tax year 2009-10 and subsequent tax years, and ii for distributions made on or after 1st December 2009; b for the purposes of corporation tax— i on income, for accounting periods ending on or after 1st December 2009 and for distributions made on or after that date, and ii on chargeable gains, in relation to disposals made on or after 1st December 2009; and c for the purposes of capital gains tax, in relation to disposals made on or after 1st December 2009. 3 Paragraph (2) is subject to Schedule 1 to these Regulations (transitional provisions and savings). Structure of these Regulations 2 The structure of these Regulations is as follows— this Part contains introductory provisions; Part 2 deals with the treatment of participants in non-reporting funds; Part 3 deals with reporting funds and the treatment of participants in reporting funds; Part 3A deals with annual payments to non-resident participants; Part 4 makes consequential amendments to primary legislation. General provisions Definition of “offshore fund” 3 1 In these Regulations “ offshore fund ” has the meaning given by section 40A(2) of FA 2008 (read with the provisions of the relevant group of sections). 2 Paragraph (1) does not apply to the use of the words “offshore fund” in the expression “material interest in an offshore fund”. Classification of offshore funds 4 1 Offshore funds consist of— a non-reporting funds (see Part 2 of these Regulations), and b reporting funds (see Part 3 of these Regulations). 2 In a period of account an offshore fund is a non-reporting fund unless it is a fund to which Part 3 of these Regulations applies .... Treatment of umbrella arrangements and of funds comprising more than one class of interest Treatment of umbrella arrangements 5 In these Regulations, in relation to an offshore fund constituted by a part of umbrella arrangements (within the meaning of section 40C of FA 2008)— a a reference to the assets of an offshore fund is to such of the assets of the umbrella arrangements as under the arrangements form part of the separate pool to which that part of the umbrella arrangements relates; b a reference to the income of an offshore fund is to the income arising from those assets; and c a reference to a participant in an offshore fund is to a person for the time being owning an interest in that separate pool. Treatment of funds comprising more than one class of interest 6 In these Regulations, in relation to an offshore fund constituted by a class of interest in the main arrangements (within the meaning of section 40D of FA 2008)— a a reference to the assets of an offshore fund is to the assets of the main arrangements; 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 arrangements; and c a reference to a participant in an offshore fund is to a person for the time being owning an interest of that class. Interpretation Meaning of “participant” 7 In these Regulations references to a participant in a fund are to be read in accordance with section 40A(5) of FA 2008. Meaning of “interest” (of a participant in an offshore fund) 8 1 For the purposes of these Regulations the interest of a participant in an offshore fund is the investment held by a participant taking part in arrangements (or arrangements constituting a fund) to which the relevant group of sections applies. 2 Paragraph (1) does not apply to the use of the word “interest” in the expression “material interest in an offshore fund”. Meaning of “guaranteed return fund” 9 1 For the purposes of these Regulations an offshore fund is a guaranteed return fund if conditions A to C are met. 2 Condition A is that the return on the shares or other interests in the fund is defined by reference to an index. 3 Condition B is that the assets of the fund which are held to produce the return on the shares or other interests concerned cannot give rise to a return which, if it arose directly to an individual resident in the United Kingdom, would be chargeable to income tax. 4 Condition C is that it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangements constituting the offshore fund is or was the production for participants of a return that equates, in substance, to the return on an investment of money at interest. Meaning of “market value” 10 1 For the purposes of these Regulations the market value of any asset is to be determined in like manner as it would be determined for the purposes of TCGA 1992. 2 But, in the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 272(5) of that Act (meaning of “ market value ” in relation to rights of unit holders in a unit trust scheme) shall apply with any necessary modifications for determining the market value of the interest for the purposes of these Regulations. Meaning of “transparent fund” 11 For the purposes of these Regulations a fund is a “transparent fund” if, in the case of holders of interests in the fund who are individuals resident in the United Kingdom, any sums which form part of the income of the fund are of such a nature that those holders— a are chargeable to tax under a provision specified in section 830(2) of ITTOIA 2005 in respect of such of those sums as are referable to their interests, or b if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom. General interpretation 12 In these Regulations— “ HMRC ” means Her Majesty's Revenue and Customs; “ period of account ”, in relation to an offshore fund, means any period for which accounts of the offshore fund are drawn up; “ proposed prospectus ” includes— any document supplementing or amending the proposed prospectus, and any document fulfilling the same function as a proposed prospectus; “ prospectus ” includes— any document supplementing or amending the prospectus, and any document fulfilling the same function as a prospectus; “regulated market” means— a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation; the “ relevant group of sections ” means sections 40A to 42A of FA 2008 ; “tax year”— in relation to income tax, has the meaning given by section 4(2) of ITA 2007, and in relation to capital gains tax, has the meaning given by section 288(1ZA) of TCGA 1992 ; “ tribunal ” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal; “UCITS fund” means— a UCITS within the meaning given by section 236A of the Financial Services and Markets Act 2000, or an undertaking established in Gibraltar which is a UCITS under the law of Gibraltar which implemented Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. Transitional provisions etc. Transitional provisions and savings, repeals, abbreviations and general index 13 1 Schedule 1 to these Regulations (which contains transitional provisions and savings) has effect. 2 Schedule 2 to these Regulations (which contains repeals) has effect. 3 The repeals contained in Schedule 2 have effect subject to the saving contained in paragraph 3(4) of Schedule 1. 4 Schedule 3 to these Regulations (which contains abbreviations and defined expressions that apply for the purposes of these Regulations) has effect. 5 Part 1 of Schedule 3 gives the meaning of the abbreviated references to Acts used in these Regulations. 6 Part 2 of Schedule 3 lists the places where expressions used in these Regulations are defined or otherwise explained— a in these Regulations for the purposes of these Regulations, or b in these Regulations for the purposes of a Part or Chapter of these Regulations. PART 2 THE TREATMENT OF PARTICIPANTS IN NON-REPORTING FUNDS CHAPTER 1 PRELIMINARY PROVISIONS Structure of this Part 14 The structure of this Part is as follows— a this Chapter contains preliminary provisions; b Chapter 2 deals with charges to tax on participants in non-reporting funds; c Chapter 3 deals with exceptions from the charge to tax; d Chapter 4 deals with disposals of interests in non-reporting funds; e Chapter 5 deals with offshore income gains and the computation of offshore income gains; f Chapter 6 deals with the deduction of offshore income gains in computing chargeable gains; g Chapter 7 deals with the conversion of a non-reporting fund into a reporting fund. Meaning of “material disposal” 15 In these Regulations a “ material disposal ” means a disposal to which this Part applies. CHAPTER 2 CHARGES TO TAX ON PARTICIPANTS IN NON-REPORTING FUNDS Charge to tax on certain amounts treated as distributions Treatment of certain amounts as distributions 16 1 This regulation applies if a non-reporting fund which is a transparent fund has an interest in a reporting fund. 2 In the case of any excess specified in regulation 94(1) or (2) which is treated, under that regulation, as made to the non-reporting fund, the Tax Acts have effect as if the excess were additional income of the participants in the non-reporting fund in proportion to their rights. 3 The additional income is treated as arising on the same date as the excess is treated as made to the non-reporting fund. 4 If a participant in the non-reporting fund is chargeable to income tax, the additional income is charged as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 . 5 If a participant in the non-reporting fund is chargeable to corporation tax, the additional income is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged). Charge to tax on disposal of asset The charge to tax 17 1 There is a charge to tax if— a a person disposes of an asset, b either condition A or condition B is met, and c as a result of the disposal, an offshore income gain arises to the person making the disposal. 2 Condition A is that the asset is an interest in a non-reporting fund at the time of the disposal. 3 Condition B is that— a the asset is an interest in a reporting fund at the time of the disposal, b the reporting fund was previously a non-reporting fund (becoming a reporting fund as the result of an application under regulation 52), c the interest was an interest in a non-reporting fund during some or all of the material period, d an election under regulation 48 was not prevented by paragraph (5) of that regulation, and e no election has been made under regulation 48(2). 3A Where the asset is an interest in a reporting fund acquired in consequence of an arrangement to which section 135 (exchange of securities for those in another company treated as not involving a disposal) or section 136 (scheme of reconstruction involving issue of securities treated as exchange not involving a disposal) of TCGA 1992 applied, the reporting fund referred to in sub-paragraph (b) of condition B is the fund that was company A for the purposes of either of those sections and the interest referred to in sub-paragraph (c) of condition B is the interest in that fund. 4 For the purposes of paragraph (3)(c) the “ material period ” means a period beginning with the day on which consideration was given for the acquisition of the asset or on 1st January 1984 (whichever is the later) and ending with the day on which the fund became a reporting fund. 4A For the purposes of paragraph (4), where the asset was acquired on the vesting of variable remuneration represented by profit allocated under section 863I of ITTOIA 2005 (allocation of profit to the AIFM firm) , the date on which the variable remuneration was awarded is treated as the date on which consideration was given for the acquisition of the asset. 4B Terms used in paragraph (4A) which are also used in section 863I of ITTOIA 2005 have the same meaning as in that section. 5 Chapter 5 of this Part deals with offshore income gains and the computation of offshore income gains. The charge to tax: further provisions 18 1 The offshore income gain arising is treated for all the purposes of the Tax Acts as income which arises at the time of the disposal to the person making the disposal (or treated as making the disposal). 2 The tax is charged on the person making the disposal (or treated as making the disposal). 3 In the case of a person chargeable to income tax, tax is charged under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the disposal is made, but sections 688(1) and 689 of ITTOIA 2005 (income charged and person liable) do not apply. 4 In the case of a person chargeable to corporation tax, tax is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged) for the accounting period in which the disposal is made. 5 Paragraph (1) is subject to— a regulation 19 (income treated as arising under regulation 17: remittance basis); b regulation 20(1) (offshore income gain arising to non-resident trustees not treated as income of settlor); c regulation 20(5) (application to gains of non-resident settlements); d regulation 24(6) (application of section 13 of TCGA 1992). 6 Nothing in regulation 17 of these Regulations applies to— a an authorised investment fund to which regulation 14ZB, 14ZD(1) or Part 6A of the Authorised Investment Fund (Tax) Regulations 2006 applies, ... b an investment trust company to which regulation 43 or 45 of the Investment Trust (Approved Company) (Tax) Regulations 2011 apply , or c the trustees of an exempt unauthorised unit trust to which regulations 22 or 23 of the Unauthorised Unit Trusts (Tax) Regulations 2013 applies. Income treated as arising under regulation 17: remittance basis 19 1 This regulation applies to income treated as arising under regulation 17 to an individual in a tax year if— a section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the individual for that year, and b the individual is not domiciled in the United Kingdom in that year. 2 The income is treated as relevant foreign income of the individual. 3 For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis)— a any consideration obtained on the disposal of the asset is treated as deriving from the income, and b unless the consideration so obtained is of an amount equal to or exceeding the market value of the asset, the asset is treated as deriving from the income. 4 In paragraph (3)— a “ the asset ” means the asset the disposal of which causes the income to be treated as arising, and b “ the disposal ” means the disposal mentioned in sub-paragraph (a) of that paragraph. 5 This regulation does not apply for the purposes of regulation 20. Offshore funds and gains of non-resident settlements Application to gains of non-resident settlements 20 1 If an offshore income gain arises to a settlement in a tax year and the trustees of the settlement are not resident in the United Kingdom in the tax year, the gain is not regarded as income for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor). 2 If— a offshore income gains arise to the trustees of a settlement in a tax year, and b section 87 of TCGA 1992 (gains of non-resident settlements) applies to the settlement for that year, the OIG amount for the settlement for that year is the amount of the offshore income gains. 3 Sections 12, 87 to 90A and 96 to 98 of, and Schedule 4C to, TCGA 1992 apply in relation to OIG amounts as if— a references to section 2(2) amounts (except those in paragraph 7B(2)(b) and (4) of Schedule 4C) were to OIG amounts, b references to chargeable gains (except the one in paragraph 1(5) of Schedule 4C) were to offshore income gains, c references to anything accruing were to it arising (and similar references, except the one in paragraph 1(5) of Schedule 4C, were read accordingly), d sections 87(4), 88(2) to (5) and 97(6) and paragraphs 1(3A), 3 to 7 and 12 of Schedule 4C were omitted, and e regulation 21 did not apply. 4 Section 87A of TCGA 1992 applies for a tax year by virtue of paragraph (3) before it applies for that year otherwise than by virtue of that paragraph. 5 If this regulation applies, the person to whom the offshore income gain arises is treated as the person making the disposal. Offshore funds and the transfer of assets abroad Application of transfer of assets abroad provisions 21 1 Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) applies in relation to an offshore income gain arising to a person resident or domiciled outside the United Kingdom as if the offshore income gain were income becoming payable to the person. 2 Income treated as arising under that Chapter by virtue of paragraph (1) is regarded as “ foreign ” for the purposes of section 726, 730 or 735 of that Act. 3 Paragraph (1) does not apply in relation to an offshore income gain if (and to the extent that) it is treated, by virtue of regulation 24, as arising to a person resident ... in the United Kingdom. 4 The following provisions apply if regulation 20 applies in relation to an offshore income gain (the “relevant offshore income gain”). 5 If— a by virtue of regulation 20 an offshore income gain is treated as arising in a tax year to a person resident ... in the United Kingdom, and b it is so treated by reason of the relevant offshore income gain (or part of it), for that and subsequent tax years paragraph (1) does not apply in relation to the relevant offshore income gain (or that part). 6 If, by virtue of paragraph (1) as it applies in relation to the relevant offshore income gain, income is treated under Chapter 2 of Part 13 of ITA 2007 as arising in a tax year, the OIG amount in question must be reduced (with effect from the following tax year) by the amount of the income. Application of TCGA 1992 Application of certain provisions of TCGA 1992 22 1 The following enactments have effect in relation to income tax or corporation tax in respect of offshore income gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains— a section 2(1) of TCGA 1992 (persons chargeable to capital gains tax); b section 10 of TCGA 1992 (non-resident with a United Kingdom branch or agency); c section 10B of TCGA 1992 (non-resident company with United Kingdom permanent establishment). 2 Paragraph (1) is subject to paragraphs (3) and (4). 3 In the application of section 10 of TCGA 1992 in accordance with paragraph (1), paragraphs (a) and (b) of subsection (1) (assets on the disposal of which chargeable gains are taxable) have effect with the omission of the words “situated in the United Kingdom and”. 4 In the application of section 10B of TCGA 1992 in accordance with paragraph (1), paragraphs (a) and (b) of subsection (1) (assets on the disposal of which chargeable profits arise for the purposes of corporation tax) have effect with the omission of the words “situated in the United Kingdom and”. Temporary non-residents 23 1 This regulation applies where an individual (“the taxpayer”) is temporarily non-resident. 2 The taxpayer is chargeable to income tax as if offshore income gains within paragraph (3) were offshore income gains arising to the taxpayer in the period of return. 3 The offshore income gains within this paragraph are those that— a arise to the taxpayer in the temporary period of non-residence, and b would be treated under section 13 of TCGA 1992 (attribution of gains to members of non-resident companies) as it applies to offshore income gains by virtue of regulation 24 as having arisen to the taxpayer in that period if the residence assumption were made. 4 The residence assumption is— a that the taxpayer had been resident in the United Kingdom for the tax year in which the offshore income gain arose to the company, or b if that tax year was a split year as respects the taxpayer, that offshore income gain had arisen to the company in the UK part of it. 5 But a gain is not within paragraph (3) if, ignoring this regulation, the taxpayer is chargeable to income tax in respect of it (and could not cease to be so chargeable by making a claim under section 6 of the Taxation (International and Other Provisions) Act 2010). 6 Paragraph (2) is subject to regulation 23A. 7 If section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the taxpayer for the year of return, any offshore income gains to which regulation 19(2) applies falling within paragraph (3) of this regulation by virtue of sub-paragraph (a) of that paragraph that were remitted to the United Kingdom at any time in the temporary period of non-residence are to be treated as remitted to the United Kingdom in the period of return. 8 In this regulation— a “remitted to the United Kingdom” has the same meaning as in Chapter A1 of Part 14 of ITA 2007 , b “split year” has the meaning given in paragraph 43 of Schedule 45 to the Finance Act 2013, c “temporarily non-resident” has the meaning given in paragraph 110 of that Schedule, d “the UK part” of a split year has the meaning given in paragraph 56 of that Schedule. 9 In this regulation and regulation 23A— a “period of return” has the meaning given in paragraph 115 of Schedule 45 to the Finance Act 2013, b “temporary period of non-residence” has the meaning given in paragraph 113 of that Schedule, and c “the year of return” has the meaning given in section 10A(11) of TCGA 1992 . Regulation 23: supplementary 23A 1 Regulation 23(2) does not apply to an offshore income gain accruing on the disposal by the taxpayer of an asset if – a the asset was acquired by the taxpayer in the temporary period of non-residence, b it was so acquired otherwise than by means of a relevant disposal that by virtue of section 58, 73 or 258(4) TCGA 1992 is treated as having been a disposal on which neither a gain nor a loss accrued, and c the asset is not an interest created by or arising under a settlement. 2 Nothing in any double taxation relief arrangements is to be read as preventing the taxpayer from being chargeable to income tax in respect of any offshore income gains treated under regulation 23 as accruing to the taxpayer in the period of return (or as preventing a charge to that tax from arising as a result). 3 Nothing in any enactment imposing any limit on the time within which an assessment to income tax may be made prevents any assessment for the year of departure from being made in the taxpayer’s case at any time before the end of the second anniversary of the 31 January next following the year of return. 4 In this regulation— a “relevant disposal” has the meaning given in section 10AA(2) of TCGA 1992 , and b “the year of departure” has the meaning given in paragraph 114 of Schedule 45 to the Finance Act 2013. Application of section 13 of TCGA 1992 24 1 Section 13 of TCGA 1992 (chargeable gains accruing to certain non-resident companies) applies for the purposes of this Part with the following modifications. 2 The section applies as if— a for any reference to a chargeable gain there were substituted a reference to an offshore income gain; and b for any reference to anything accruing there were substituted a reference to it arising (with similar references being read accordingly). 3 The section applies as if, in subsection (5), paragraphs (b) and (c) were omitted. 4 The section applies as if, in subsection (7), for the reference to capital gains tax there were substituted a reference to income tax or corporation tax. 5 The section applies as if subsection (8) were omitted. 6 If this regulation applies, the person to whom the offshore income gain arises is treated as the person making the disposal. 7 To the extent that an offshore income gain is treated, by virtue of this regulation, as having accrued to any person resident ... in the United Kingdom, that gain shall not be deemed to be the income of any individual for the purposes of Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad). CHAPTER 3 EXCEPTIONS ETC. FROM THE CHARGE TO TAX Exceptions from the charge 25 1 No liability to tax arises under regulation 17 if any of conditions A to E is met. 2 Condition A is that the participant is required to treat the interest in the fund as a loan relationship under Chapter 3 of Part 6 of CTA 2009. 3 Condition B is that the participant is required to treat the interest in the fund as a derivative contract to which the provisions of Part 7 of CTA 2009 apply. 4 Condition C is that the asset is an intangible fixed asset to which the provisions of Part 8 of CTA 2009 apply. 5 Condition D is that the asset consists of excluded indexed securities as defined in section 433 of ITTOIA 2005. 6 Condition E is that the asset is a right arising under a policy of insurance. Trading stock etc. 26 1 No liability to tax arises under regulation 17 if condition A or B is met. 2 Condition A is that the interest in the fund is held as trading stock. 3 Condition B is that the disposal of the interest is taken into account in computing the profits of a trade. Long-term insurance funds of insurance companies 27 1 No liability to tax arises under regulation 17 in respect of disposals of assets of an insurance company's long-term insurance fund. 2 In paragraph (1) “ insurance company ” and “ long-term insurance fund ” have the same meaning as in section 431(2) of ICTA . Loans other than participating loans 28 1 No liability to tax arises under regulation 17 if the asset is a loan which is not a participating loan. 2 For the purposes of paragraph (1) a “ participating loan ” means a loan where the amount payable on redemption exceeds the issue price by an amount which is determined in whole or in part by reference to the income of the non-reporting fund. Interests in transparent funds 29 1 No liability to tax arises under regulation 17 if— a the disposal is the disposal of an interest in an offshore fund falling within paragraph (b) or (c) of section 40A(2) of FA 2008 , and b the fund is a transparent fund. This is subject to paragraphs (2) and (3). 2 But there is a charge to tax under regulation 17 if— a there is a disposal of an interest in a transparent fund, and b during a period beginning with the date the interest (or any part of it) was acquired and ending with the date of the disposal, the offshore fund has at any time held interests in other non-reporting funds which amounted in total to more than 5% by value of the offshore fund's assets. 3 And there is a charge to tax under regulation 17 if— a there is a disposal of an interest in a transparent fund, b the fund is a non-reporting fund, and c the fund fails to make sufficient information available to participants in the fund to enable those participants to meet their tax obligations in the United Kingdom with respect to their shares of the income of the fund. 4 If, on the disposal by an offshore fund of an interest in another non-reporting fund, no liability would arise under regulation 17 by virtue of this regulation, that interest is not taken into account for the purposes of paragraph (2)(b). Rights in certain existing holdings 30 1 No liability to tax arises under regulation 17 in respect of any rights in an offshore fund to which this regulation applies if the rights are acquired by a person— a before 1st December 2009, or b in accordance with paragraph (2). 2 Rights are acquired in accordance with this paragraph if— a the rights are acquired by the participant in accordance with a legally enforceable agreement in writing that was entered into by the participant before 30th April 2009, b in the case of an agreement which was conditional, the conditions are met before that date, and c the agreement is not varied on or after that date. 3 Rights of a person in a fund are rights in an offshore fund to which this regulation applies if, on the date on which the person acquired the rights, those rights did not constitute a material interest in an offshore fund within the meaning of that expression given by section 759 of ICTA . Charitable companies and charitable trusts 31 1 A charitable company shall be exempt from corporation tax in respect of an offshore income gain if the gain is applicable and applied for charitable purposes. 2 See section 535 of ITA 2007 for an exemption for income tax purposes for offshore income gains accruing to a charitable trust. 3 Paragraphs (4) and (5) apply if— a property held on charitable trusts ceases to be subject to charitable trusts, and b that property represents directly or indirectly an offshore income gain. 4 The trustees are treated as if they had disposed of and immediately reacquired that property for a consideration equal to its market value. 5 An offshore income gain accruing on the disposal arising under paragraph (4) is treated as an offshore income gain not accruing to a charity. 6 In this regulation “ charity ” and “ charitable company ” have the same meaning as in section 506 of ICTA . Unlisted trading company exception 31A 1 No liability to tax arises under regulation 17 if conditions A to D are met. 2 Condition A is that the disposal is a disposal of an interest in an offshore fund. 3 Condition B is that the sole or main purpose of the fund is to invest in qualifying companies. 4 Condition C is that throughout the period starting with the date on which the interest was acquired and ending 12 months before the date of the disposal the fund met the investment condition. This is subject to paragraph (6). 5 Condition D is that participants in the fund have access to, and are able to obtain copies of, sufficient information to demonstrate that the fund intends to dispose of any holdings of shares or securities within regulation 31B(1)(b) or (d). 6 Condition C is treated as met in relation to the period— a starting at the beginning of the first period of account of the fund, and b ending on the earlier of— i the expiry of 3 months, and ii the date the fund meets the investment condition, if the only asset of the fund during that period is cash. 7 For the purposes of this regulation and regulation 31B— “cash” means cash deposited in a bank account or similar account, but not cash acquired wholly or partly for the purpose of realising a gain on its disposal; “qualifying company” means a trading company or the holding company of a trading group or a trading subgroup, where— the shares of the company are not listed on a recognised stock exchange or admitted to trading on a regulated market, and the activities of the trading company or, in the case of a holding company, the activities of the members of the group or subgroup taken together, do not include to a substantial extent the carrying out of investment transactions undertaken in the course of a trade. 8 In paragraph (7) in the definition of “qualifying company”, “holding company”, “trading company”, “trading group” and “trading subgroup” have the same meanings as in Schedule 7AC to TCGA 1992 (see paragraphs 20 to 24 and 26 and 27 of that Schedule). Unlisted trading company exception: the investment condition 31B 1 The investment condition is that at least 90% of the value of the assets of the fund consists of— a direct or indirect holdings in qualifying companies, b holdings of shares or securities listed on a recognised stock exchange or admitted to trading on a regulated market which the fund intends to dispose of as soon as reasonably practicable, taking into account market conditions and commercial and contractual constraints, and which— i were acquired by the fund in exchange for shares or securities in a qualifying company, or ii were shares in a qualifying company at the time of their acquisition by the fund, c holdings of shares or securities listed on a recognised stock exchange or admitted to trading on a regulated market, which are holdings in a company that would be a qualifying company if it were not so listed or admitted, where it is reasonable to believe that the shares or securities will cease to be so listed or admitted within 12 months, d shares or securities which have ceased to be within sub-paragraph (c) because it is no longer reasonable to believe that they will cease to be listed or admitted, which the fund intends to dispose of as soon as reasonably practicable taking into account market conditions and commercial and contractual constraints. 2 For the purposes of the investment condition— a any holding of cash shall be disregarded, and b a holding in a qualifying company is held indirectly if it is held by a corporate body which is a 51% subsidiary of the fund. 3 For the purposes of paragraph (2) section 1154 of CTA 2010 applies to determine whether a corporate body is a 51% subsidiary of a fund. Unlisted trading company exception: further provision 31C No liability to tax arises under regulation 17 if— a the disposal is of an interest in an offshore fund whose business consists solely of holding an interest in another offshore fund (“X”), and b conditions B to D of regulation 31A apply in relation to X. CHAPTER 4 DISPOSALS OF INTERESTS IN NON-REPORTING FUNDS Basic provisions Application of this Chapter 32 This Chapter applies if a participant disposes of an asset and at the time of the disposal— a the asset is an interest in a non-reporting fund, or b the asset is an interest in a reporting fund and the requirements specified in paragraph (3) of regulation 17 (read, as appropriate, with paragraphs (4) and (5) of that regulation) are met. Disposal of an asset: the basic rule 33 1 There is a disposal of an asset for the purposes of these Regulations if there would be a disposal of an asset for the purposes of TCGA 1992. 2 Paragraph (1) is subject to the following provisions of this Chapter. Further provisions Provisions applicable on death 34 1 Notwithstanding anything in paragraph (b) of subsection (1) of section 62 of TCGA 1992 (general provisions applicable on death: no deemed disposal by the deceased), where a person dies and the assets of which the deceased was competent to dispose at the time of death include an interest in a non-reporting fund, then, for the purposes of these Regulations— a immediately before the acquisition referred to in paragraph (a) of that subsection, that interest shall be deemed to be disposed of by the deceased for such a consideration as is mentioned in that subsection; but b nothing in this regulation affects the determination, in accordance with regulation 32, of the question whether that deemed disposal is one to which this Chapter applies. 2 Subject to paragraph (1), section 62 of TCGA 1992 applies for the purposes of these Regulations as it applies for the purposes of that Act, and the reference in that paragraph to the assets of which a deceased person was competent to dispose are to be construed in accordance with subsection (10) of that section. Exchanges and schemes of reconstruction 36A 1 The following sections of TCGA 1992 do not apply to the extent that an interest in a non-reporting fund is exchanged or treated as exchanged for an asset which is not an interest in a non-reporting fund. 2 The sections are— a section 103G (exchange of units for those in another collective investment scheme), b section 103H (scheme of reconstruction involving issue of units), c section 135 (exchange of securities for those in another company), and d section 136 (scheme of reconstruction involving issue of securities). 3 In a case where one of those sections would apply apart from paragraph (1), the exchange or deemed exchange shall for the purposes of this Part constitute a disposal of interests in the non-reporting fund for a consideration equal to their market value at the time of the exchange or deemed exchange. Exchange of interests of different classes 37 1 If conditions A to D are met, section 127 of TCGA 1992 (equation of original shares and new holding) does not prevent an exchange from constituting a disposal for the purposes of these Regulations. 2 Condition A is that an offshore fund is constituted by a class of interest (“class A”) in main arrangements. 3 Condition B is that a participant exchanges an interest of class A for an interest in another offshore fund constituted by a different class of interest (“class B”) in those main arrangements. 4 Condition C is that the interest of class A is at the time of the exchange an interest in a non-reporting fund. 5 Condition D is that the interest of class B is at the time of the exchange an interest which is not an interest in a non-reporting fund. 6 Any disposal to which this regulation applies is to be treated as a disposal for a consideration equal to the market value of the rights at the time of the exchange. CHAPTER 5 OFFSHORE INCOME GAINS AND THE COMPUTATION OF OFFSHORE INCOME GAINS General provisions 38 1 An offshore income gain arises to a person on the disposal of an asset if a basic gain arises on the disposal. 2 The disposal gives rise to an offshore income gain of an amount equal to the basic gain on the disposal. 3 The following provisions of this Chapter explain how the basic gain is computed. The basic gain and its computation 39 1 In the case of a participant chargeable to income tax, the basic gain is a gain of the amount which would be the gain on that disposal for the purposes of TCGA 1992 if the gain were computed without regard to any charge to income tax arising under this Part. 2 In the case of a participant chargeable to corporation tax, the basic gain is a gain of the amount which would be the gain on that disposal for the purposes of TCGA 1992 if the gain were computed— a without regard to any charge to corporation tax arising under this Part, and b without regard to any indexation allowance on the disposal under TCGA 1992. 3 The computation of the basic gain is subject to— a regulation 34 (provisions applicable on death); aa regulation 36A (exchanges and schemes of reconstruction); d regulation 37 (exchange of interests of different classes; e regulation 40 (earlier disposal to which the no gain/no loss basis applies); f regulation 41 (modifications of TCGA 1992); g regulation 42 (losses); h regulation 43 (special rules for certain existing holdings). Earlier disposal to which the no gain/no loss basis applies 40 1 This regulation applies if— a a participant is chargeable to corporation tax, and b the amount of any chargeable gain or allowable loss which would arise on the disposal would fall to be computed in a way which, in whole or in part, would take account of the indexation allowance on an earlier disposal to which section 56(2) of TCGA 1992 (disposals on a no gain/no loss basis) applies. 2 The basic gain on the disposal is computed as if— a no indexation allowance had been available on any such earlier disposal, and b subject to that, neither a gain nor a loss had arisen to the person making such an earlier disposal. Modifications of TCGA 1992 41 1 If the disposal forms part of a transfer to which section 162 of TCGA 1992 (roll-over relief on transfer of business) applies, the basic gain arising on the disposal is computed without regard to any deduction which falls to be made under that section in computing a chargeable gain. 2 If the disposal is made otherwise than under a bargain at arm's length and a claim for relief is made in respect of that disposal under section 165 or 260 of TCGA 1992 (relief for gifts), the claim does not affect the computation of the basic gain arising on the disposal. Losses 42 1 If the effect of any computation under regulations 39 to 41 would be to produce a loss, the basic gain on the disposal is nil. 2 Paragraph (1) applies notwithstanding section 16 of TCGA 1992 (losses determined in like manner as gains). 3 Accordingly, for the purposes of these Regulations, no loss is to be treated as arising on the disposal. Special rules for certain existing holdings 43 1 This regulation applies if— a a person acquired rights (the “protected rights”) in an offshore fund— i before 1st December 2009, or ii in accordance with paragraph (2), b immediately before 1st December 2009 those rights did not constitute a material interest in an offshore fund within the meaning of that expression given by section 759 of ICTA , and c on or after 1st December 2009 the person acquires additional rights in the offshore fund (the “non-protected rights”). 2 Rights are acquired in accordance with this paragraph if— a the rights are acquired by the participant in accordance with a legally enforceable agreement in writing that was entered into by the participant before 30th April 2009, b in the case of an agreement which was conditional, the conditions are met before that date, and c the agreement is not varied on or after that date. 3 For the purposes of tax in respect of chargeable gains— a section 104 of TCGA 1992 (share pooling: general interpretative provisions) applies as if the protected rights were assets of a different class from the non-protected rights, and b all the protected rights must be treated as disposed of before any of the non-protected rights may be so treated. CHAPTER 6 DEDUCTION OF OFFSHORE INCOME GAINS IN COMPUTING CHARGEABLE GAINS Ambit of this Chapter 44 1 This Chapter applies if— a a material disposal gives rise to an offshore income gain, and b that disposal also constitutes the disposal of the interest concerned for the purposes of TCGA 1992. 2 In this Chapter the disposal specified in paragraph (1)(b) is called the “TCGA disposal”. Treatment of the TCGA disposal: general rules 45 1 This regulation applies for the purposes of the computation of the chargeable gain arising on the TCGA disposal. 2 The provisions of this regulation have effect in relation to the TCGA disposal in substitution for section 37(1) of TCGA 1992 (deduction of consideration chargeable to tax on income). 3 In the computation of the gain arising on the TCGA disposal, a sum equal to the offshore income gain shall be deducted from the sum which would otherwise constitute the amount or value of the consideration for the disposal. 4 Paragraph (3) is subject to the following provisions of this Chapter. 5 Paragraph (6) applies if the TCGA disposal is of such a nature that, by virtue of section 42 of TCGA 1992 (part disposals), an apportionment falls to be made of certain expenditure. 6 No deduction is to be made by virtue of paragraph (3) in determining the amount or value of the consideration for the purposes of the fraction in section 42(2) of TCGA 1992. Modification of section 162 of TCGA 1992 46 1 This regulation applies if the TCGA disposal forms part of a transfer to which section 162 of TCGA 1992 applies (roll-over relief on transfer of business in exchange wholly or partly for shares). 2 For the purposes of subsection (4) of section 162 of TCGA 1992 (determination of the amount of the deduction from the gain on the old assets) “B” in the fraction in that subsection (the value of the whole of the consideration received by the transferor in exchange for the business) is to be taken to be what it would be if the value of the consideration other than shares so received by the transferor were reduced by an amount equal to the offshore income gain. Application of section 128 of TCGA 1992 47 1 This regulation applies if there is a disposal to which this Part applies by virtue of— aa regulation 36A (exchanges and schemes of reconstruction), or c regulation 37 (exchange of interests of different classes). 2 TCGA 1992 has effect as if an amount equal to the offshore income gain to which that disposal gives rise were given (by the person making the exchange) as consideration for the new holding (within the meaning of section 128 of that Act (consideration given or received for new holding on a reorganisation)). CHAPTER 7 THE CONVERSION OF A NON-REPORTING FUND INTO A REPORTING FUND Consequences of conversion for participants 48 1 This regulation applies if an offshore fund ceases to be a non-reporting fund and becomes a reporting fund. 2 A participant in the fund may make an election to be treated— a as disposing of the interest owned by the participant in the non-reporting fund at its market value on the disposal date, and b as acquiring a holding in the reporting fund at the beginning of the reporting fund's first period of account. This is subject to paragraphs (5) and (5A) . 3 Chapter 5 of this Part applies to determine the offshore income gain arising on the deemed disposal referred to in paragraph (2)(a). 4 The deemed acquisition referred to in paragraph (2)(b) is treated as made for the same amount as the deemed disposal referred to in paragraph (2)(a). 5 An election may not be made under paragraph (2) unless the offshore income gain arising on the deemed disposal referred to in paragraph (2)(a) (determined in accordance with paragraph (3)) is greater than zero. 5A If the interest owned by the participant represents variable remuneration represented by profit allocated under section 863I of ITTOIA 2005 (allocation of profit to the AIFM firm), an election may not be made under paragraph (2) if the fund ceases to be a non-reporting fund and becomes a reporting fund before the remuneration has vested in the participant. 6 If the participant is chargeable to income tax, the election mentioned in paragraph (2) must be made by being included in a return made for the tax year which includes the disposal date. 7 If the participant is chargeable to corporation tax, the election mentioned in paragraph (2) must be made by being included in the participant's company tax return for the accounting period which includes the disposal date. 8 In this regulation— “ company tax return ” has the same meaning as in Schedule 18 to the Finance Act 1998 ; the “ disposal date ” means the final day of the last period of account before the fund becomes a reporting fund. PART 3 REPORTING FUNDS AND THE TREATMENT OF PARTICIPANTS IN REPORTING FUNDS CHAPTER 1 PRELIMINARY PROVISIONS Structure and application of this Part 49 1 The structure of this Part is as follows— a this Chapter contains preliminary provisions; b Chapter 2 deals with entry into the reporting fund regime; c Chapter 3 deals with the general duties of reporting funds; d Chapter 4 deals with the preparation of accounts; e Chapter 5 deals with the computation of reportable income; f Chapter 6 deals with transactions by certain reporting funds which are not treated as trading; fa Chapter 6A deals with transparent reporting funds; g Chapter 7 deals with reports to participants; h Chapter 8 deals with the tax treatment of participants in reporting funds; i Chapter 9 deals with the provision of information to HMRC; j Chapter 10 deals with breaches of reporting fund requirements; k Chapter 11 deals with leaving the reporting fund regime; l Chapter 12 deals with constant NAV funds. 2 This Part contains provisions applying to— a funds that are not constant NAV funds (see Chapters 2 to 11), ... aa transparent reporting funds (see Chapter 6A), and b constant NAV funds (see Chapter 12). 3 Chapters 4 to 6 do not apply to transparent reporting funds. Meaning of “reporting fund” 50 In these Regulations a “ reporting fund ” means an offshore fund to which this Part applies for a period of account. Meaning of “equalisation arrangements”, “full equalisation arrangements” and “equalisation amount” 50A For the purposes of this Part— a a reporting fund operates equalisation arrangements if it has given a statement under regulation 53(1)(h) that it intends to operate such arrangements; b a reporting fund operates full equalisation arrangements if in relation to any interest acquired by way of initial purchase in the reporting period— i the equalisation amount included in the consideration for the purchase is specified by the fund in a statement in writing to the participant making the acquisition, or ii the equalisation amount per unit of interest in the fund is included in the report made available in accordance with regulation 90; c “equalisation amount” has the meaning given in regulation 72(2). CHAPTER 2 ENTRY INTO THE REPORTING FUND REGIME Applications for this Part to apply Who may make an application 51 1 The manager of an eligible offshore fund may make an application for this Part to apply to the fund. 2 If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the person expected to become the manager of the fund on its establishment (the “applicant”) may make an application for this Part to apply to the fund on its establishment. 3 In this Part— the “ applicant ” means the person referred to in paragraph (2); an “ application ” means an existing fund application or a future fund application; an “ eligible offshore fund ” means an offshore fund which is not a guaranteed return fund; an “ existing fund application ” means an application made under paragraph (1); a “ future fund application ” means an application made under paragraph (2); the “ manager ”, in relation to an offshore fund, includes the manager or other person who has or is expected to have day to day control of the property of the fund. Conversion of non-reporting fund into reporting fund 52 1 The manager of a non-reporting fund may make an application for this Part to apply to a fund if the fund is an eligible offshore fund, and— a has never been a reporting fund, or b has been a reporting fund, but ceased to be such a fund because it gave notice under regulation 116. 2 The provisions of this Part that apply to an existing fund application also apply to an application made under paragraph (1). Contents of an application 53 1 An application must include the following— a a statement of the first period of account for which it is proposed that this Part should apply to the fund; b an undertaking that no period of account will exceed 18 months; c a statement whether or not the fund intends to prepare its accounts in accordance with international accounting standards, and, if it does not, a statement of which generally accepted accounting practice it intends to use; d in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards; e in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying how the fund intends— i to comply with regulation 66(1)(b), or ii to calculate the adjustment required by regulation 66(2); f an undertaking to meet the requirements relating to reports to participants in the fund (see Chapter 7); g an undertaking to meet the requirements relating to the provision of information to HMRC (see Chapter 9). h a statement whether or not the fund intends to operate equalisation arrangements; i in a case in which the fund does intend to operate equalisation arrangements, a statement whether or not the fund intends to operate full equalisation arrangements; j in a case in which the fund does not intend to operate equalisation arrangements, a statement specifying whether or not the fund intends to make income adjustments in a reporting period; k in a case in which the fund intends to make income adjustments in a reporting period, a statement specifying— i whether the fund intends to make those adjustments on the basis of reportable income (see regulation 72A ) or on the basis of accounting income (see regulation 72B ), and ii the length of the computation period (see regulation 72C ); l in a case in which the fund intends to make income adjustments in a reporting period on the basis of accounting income— i a statement by the fund manager specifying how the accounting income is to be determined, ii a statement by the fund manager that, on the basis of this determination, it is reasonable to expect that the difference between the amount of reportable income per unit calculated using this method and the amount of reportable income per unit calculated on the basis of reportable income will be 10% or less of the latter of those amounts, and iii an undertaking by the manager to meet the requirements relating to alternative income adjustments and notice to HMRC (see regulation 72B(6) ). 2 An existing fund application must be accompanied by the prospectus. 3 A future fund application must be accompanied by the proposed prospectus. 4 The application must be in English. 5 If the prospectus or the proposed prospectus (as the case may be) is not in English, it must be accompanied by an English translation. 6 In the case of an offshore fund constituted in the manner described in regulation 5 or 6, the requirements of this regulation may be met by providing material which is— a applicable to an entity which includes the fund, and b relevant for the application for this Part to apply to the fund. Form, timing and withdrawal of application 54 1 An application must be made in writing to HMRC. 2 The application must be received by HMRC before the later of— a the end of the first period of account for which it is proposed that this Part should apply to the fund, and b the expiry of a period of 3 months beginning with the first day on which interests in the fund are made available to investors resident in the United Kingdom. 3 The application may be withdrawn— a at any time during a period beginning with the day the application is made and ending on the expiry of a period of 28 days beginning on the day on which HMRC give notice under regulation 55(1) or (5), or b at any later time, but before the end of the first reporting period, if HMRC are satisfied that the fund is not in breach of the requirements imposed by Part 3. 4 The application must be withdrawn— a by the manager (in the case of an existing fund application), or b by the applicant (in the case of a future fund application). Procedure on applications Response by HMRC to application 55 1 Within 28 days beginning with the day on which HMRC receive the application, HMRC must give notice to the person who made the application— a accepting the application, b rejecting the application, or c asking for further information in order to consider the application. 2 HMRC must not accept an application if any item mentioned in regulation 53 is not supplied. 3 HMRC must not accept an application if they consider that there will be a significant difference, in computing reportable income (see Chapter 5 or 6A ), between— a the result given by the use of international accounting standards, and b the result given by the use of the accounting practice specified in the application and by the use of the entries in the fund's accounts, specified in the application, that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards (see regulation 63). 3A Where the fund intends to make income adjustments on the basis of accounting income (see regulation 53(1)(l)), HMRC must not accept an application if they do not consider that it is reasonable to expect that the difference between the amount of reportable income per unit calculated using this method and the amount of reportable income per unit calculated on the basis of reportable income will be 10% or less of the latter of those amounts. 4 Paragraph (5) applies if— a HMRC have given notice under paragraph (1)(c), and b the person who made the application provides further information within a period of 28 days beginning with the day on which HMRC ask for further information, or within such longer period as is agreed by HMRC. 5 Within 28 days beginning with the day on which HMRC receive the further information, HMRC must give notice to the person who made the application— a accepting the application, or b rejecting the application. Appeal against rejection of application 56 1 If HMRC reject an application, the person who made the application may appeal. 2 The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given. 3 On an appeal, the tribunal may uphold or quash the rejection of the application. 4 If the tribunal quashes the rejection of the application, this Part applies as if HMRC had accepted the application in the form in which it was considered by the tribunal. CHAPTER 2A AMENDMENT TO APPLICATION FOR THIS PART TO APPLY Amending a statement relating to equalisation 56A 1 The manager of a reporting fund may apply to amend any statement under regulation 53(1)(h) to (l) in relation to a reporting period and subsequent reporting periods by application in writing to HMRC before the end of the first reporting period in relation to which the amendment is to have effect. 2 Paragraphs (4) to (8) do not apply in relation to an application to amend a statement under regulation 53(1)(h) and (i) or under regulation 53(1)(i) if the amendment sought is that the fund intends to operate full equalisation arrangements. 3 An application to which paragraph (2) applies must be accepted by HMRC within 28 days beginning with the day on which HMRC receive the application. 4 An application under paragraph (1) must specify— a the reason for the application, b the amendment sought to the statement, and c the first reporting period in which the amendment is to apply. 5 Within 28 days beginning with the day on which HMRC receive the application, HMRC must give notice to the manager— a accepting the application, b rejecting the application, or c asking for further information in order to consider the application. 6 HMRC must not accept an application if— a they consider the application is made for reasons other than commercial or administrative reasons, or b an application was accepted under this regulation in relation to either of the previous two reporting periods. 7 Paragraph (8) applies if— a HMRC have given notice under paragraph (5)(c), and b the manager provides further information within a period of 28 days beginning with the day on which HMRC ask for further information or within such longer period as is agreed by HMRC . 8 Within 28 days beginning with the day on which HMRC receive the further information, HMRC must give notice to the manager— a accepting the application, or b rejecting the application. Appeal against refusal of application to amend a statement 56B 1 If HMRC reject an application the manager may appeal. 2 The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given. 3 On an appeal, the tribunal may uphold or quash the rejection of the application. 4 If the tribunal quashes the rejection of the application, this Part applies as if HMRC had accepted the application. CHAPTER 3 THE GENERAL DUTIES OF REPORTING FUNDS Effects of entry into the reporting fund regime 57 1 If HMRC accept an application, the offshore fund becomes a reporting fund on whichever is the later of— a the first day of the first period of account mentioned in regulation 53(1)(a), or b the day on which the fund is established. This paragraph and paragraphs (2) and (3) are subject to paragraph (4). 2 This Part applies to the fund and to its participants on and after the date specified in paragraph (1). 3 Once this Part has begun to apply to a fund, it shall continue to apply unless and until it ceases to apply in accordance with Chapter 11 of this Part. 4 Where an application has been withdrawn under regulation 54(3)(b), the fund and its participants shall be treated as if the fund had never been a reporting fund. General duties of reporting funds 58 A reporting fund must— a prepare accounts in accordance with the requirements of Chapter 4 (except in the case of transparent reporting funds) ; b provide a computation of its reportable income in accordance with the requirements of Chapter 5 or 6A, as the case may be ; c provide reports to participants in accordance with the requirements of Chapter 7; and d provide information to HMRC in accordance with the requirements of Chapter 9. CHAPTER 4 THE PREPARATION OF ACCOUNTS Accounts to be prepared in accordance with acceptable accounting policy 59 A reporting fund must prepare accounts— a in accordance with international accounting standards, or b in accordance with the generally accepted accounting practice specified in the application. Change in accounting policy 60 1 This regulation applies if— a there is a change of accounting policy in drawing up a reporting fund's accounts from one period of account (in this Chapter called the “earlier period”) to the next (in this Chapter called the “later period”), and b the approach in each of those periods accords with the law and practice applicable in relation to that period. 2 If there is a difference between— a the accounting value of an asset or liability of the offshore fund at the end of the earlier period, and b the accounting value of that asset or liability at the beginning of the later period, a corresponding debit or credit (as the case may be) must be brought into account for the purposes of these Regulations in the later period. 3 In paragraph (2) “ accounting value ” means the carrying value of the asset or liability recognised for accounting purposes. Change in accounting practice to a generally accepted accounting practice 61 1 This regulation applies if— a there is a change of accounting practice in drawing up a reporting fund's accounts from the earlier period to the later period, and b the fund prepares accounts for the later period in accordance with a generally accepted accounting practice. 2 If the accounts for the later period are not prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC— a applying for approval of the generally accepted accounting practice, and b providing the statement mentioned in regulation 53(1)(d). 3 If the accounts for the later period are prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC. 4 Within 28 days beginning with the day on which HMRC receive an application under paragraph (2), HMRC must give notice to the offshore fund— a accepting the application, or b rejecting the application. 5 If HMRC reject an application, the offshore fund may appeal. 6 The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given. 7 On an appeal, the tribunal may uphold or quash the rejection of the application. CHAPTER 5 THE COMPUTATION OF REPORTABLE INCOME General Duty to provide computation 62 1 This Chapter explains how reportable income is computed. 2 A reporting fund must provide a computation of its reportable income for a period of account. Computation of reportable income: general 63 1 The starting point for computing the reportable income of a reporting fund for a period of account is— a in a case in which the fund prepares its accounts in accordance with international accounting standards, the “total comprehensive income for the period” as that expression is used in international accounting standards, or b in any other case, the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards. 2 The starting point specified in paragraph (1) must be adjusted having regard to— a capital items and miscellaneous items (see regulations 64 and 65), b special classes of income (see regulations 66 to 71), and c any arrangements to adjust income based on the number of units in issue (see regulations 72 to 72B). 3 In the case of any one item, an adjustment under paragraph (2) may be made only once (even if more than one of the regulations mentioned in that paragraph apply to that item). 4 The reportable income of the reporting fund for the period of account is the amount computed in accordance with the provisions of this Chapter and of Chapter 6. 5 But if the computation gives rise to a negative amount, the reportable income is nil. Adjustments for capital items and miscellaneous items Treatment of capital items following IMA SORP 64 1 The capital items for which an adjustment is required are such profits, gains or losses as would fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for the period of account if the accounts for that period were to be prepared in accordance with the IMA SORP. 2 The amount specified in regulation 63(1) must be adjusted by— a deducting gains that fall within the heading specified in paragraph (1), and b adding losses that fall within that heading. 3 A profit or loss from a trade may not be treated as a capital item for the purposes of this regulation. This paragraph is subject to regulation 80. 4 For the purposes of paragraph (1) the IMA SORP applies to determine the “net capital gains/losses” of an offshore fund for a period of account in the same way that it applies to determine the “net capital gains/losses” of an authorised investment fund for an accounting period. 5 In this regulation— “ authorised investment fund ” has the meaning given in the Authorised Investment Funds (Tax) Regulations 2006 ; “ the IMA SORP ” means, in relation to any period of account for which it is required or permitted to be used, the Statement of Recognised Practice relating to authorised investment funds issued by the Investment Management Association in November 2008, as from time to time modified, amended or revised. Treatment of other capital items and miscellaneous items 65 1 The amount specified in regulation 63(1) must also be adjusted by adding the amounts specified in paragraph (2). 2 Those amounts are— a expenses directly related to acquisition or disposal of investments (other than those taken into account in arriving at the amounts specified in sub-paragraph (a) or (b) of regulation 64(2)), ... b costs relating to the setting up, merger or dissolution of the fund , and c sums payable or allocated to the manager of a fund calculated by reference to an increase in the net asset value of the fund or a formula designed to reward the manager’s performance. Adjustments for special classes of income Effective interest income or comparable amounts 66 1 This regulation applies if the accounting practice used does not include— a the effective interest method for computing interest income (as described in international accounting standard 39 and equivalent United Kingdom financial reporting standards), or b another method of accounting for interest in such a way that the difference between the purchase price of an asset and the expected redemption price of the asset is taken into account as part of the interest income over the expected life of the asset. 2 The amount specified in regulation 63(1) must be adjusted by the addition of the net income computed by taking into account the expected redemption price of any interest bearing assets over the expected life of the asset. 3 The sum mentioned in paragraph (2) may be computed by any reasonable method which— a takes into account the full expected gain or loss on the asset, and b gives a reasonably comparable result to the effective interest method. Income from wholly-owned subsidiaries 67 1 This regulation applies if a reporting fund has a wholly-owned subsidiary. 2 For the purposes of this regulation, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is— a in the case of an offshore fund falling within paragraph (a) of the definition of “offshore fund” in section 40A(2) of FA 2008 , directly or indirectly owned by the fund; b in the case of an offshore fund falling within paragraph (b) of the definition of “offshore fund” in that enactment, directly or indirectly owned by the trustees of the fund for the benefit of the fund; c in the case of an offshore fund falling within paragraph (c) of the definition of “offshore fund” in that enactment, owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above. 3 But in the case of a company which has only one class of issued share capital, the reference in paragraph (2) to the whole of the issued share capital shall be construed as a reference to at least 95% of that share capital. 4 That percentage of the receipts, expenditure, assets and liabilities of the subsidiary which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in paragraph (2) shall be regarded as the receipts, expenditure, assets and liabilities of the fund. 5 There shall be left out of account— a the interest of the fund in the subsidiary, and b any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary. 6 The adjustments required under regulations 64 and 65 must be made to the amount determined under paragraph (4). Income from other reporting funds 68 1 This regulation applies if a reporting fund (“RF1”) has an interest in another reporting fund (“RF2”). 2 The excess (if any) of the income reported by RF2 in respect of RF1's interest in RF2 over the amount distributed by RF2 to RF1 must be added by RF1 to the amount specified in regulation 63(1) after making the adjustments specified in regulations 64 and 65. 3 The adjustment specified in paragraph (2) must be made in the computation of the reportable income of RF1 for the period of account in which the fund distribution date of RF2 falls or, if earlier, in which the date on which the reported income from RF2 in respect of that reporting period is recognised in the accounts of RF1 . 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 If RF2 does not make a report available in accordance with regulation 90(5) , RF1 must— a include its best estimate of reported income from RF2 as an adjustment to the computation of its reportable income for the period of account in which the latest possible fund distribution date for RF2 falls (to the extent that any such amount has not already been recognised in the computation of RF1's reportable income for that or any earlier period of account), and b make any necessary corrections to its best estimate in its computation of reportable income for the first later period of account in which it has sufficient information to make those corrections. Index tracking funds 68A 1 This regulation applies if— a a reporting fund has an interest in a non-reporting fund, and b the conditions in paragraph (2) are met for a period of account. 2 The conditions are that— a in accordance with the reporting fund’s rule or the instrument constituting the reporting fund, the aim of the fund’s investment policy is to replicate the performance of a qualifying index, b the main purpose of the investment in the non-reporting fund is to represent the composition of the qualifying index, and c the capital and income returns of the reporting fund replicate as closely as practicable the returns of the investments comprised in the qualifying index. 3 For the purposes of paragraph (2) an index is a “qualifying index” if— a it is based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market, b an authority responsible for regulating offshore funds recognises the index on the basis that— i its composition is sufficiently diverse, ii it represents an adequate benchmark for the market to which it refers, and iii it is published in such a way that it is widely available, and c it is calculated and published by a body which is managed independently from the management of the reporting fund. 4 Regulations 69 to 71 do not apply in respect of the interest in the non-reporting fund. Income from non-reporting funds: first case 69 1 This regulation applies if— a a reporting fund has an interest in a non-reporting fund, and b the conditions in paragraph (2) are met for a period of account. 2 The conditions are that— a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b the reporting fund has access to the accounts of the non-reporting fund; c the reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund; and d the reporting fund can reasonably expect to be able to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund. 3 Regulation 68(1) to (3) applies as if the reporting fund were RF1 and the non-reporting fund were RF2. 4 For the purposes of the computation mentioned in paragraph (2)(c), regulation 80 applies if (and only if) the non-reporting fund is a UCITS fund. 5 For the purposes of applying regulation 68, “fund distribution date” means the date six months after the end of the period of account in which the income arose. 6 If the period of account referred to in paragraph (5) is more than 12 months, there shall be two periods of account and two fund distribution dates for the purposes of applying regulation 68. The first fund distribution date is the date six months after the end of the first 12 months in the period of account. The second fund distribution date is the date six months after the end of the period of account in which the income arose. Income from non-reporting funds: second case 70 1 This regulation applies if a reporting fund has an interest in a non-reporting fund, but the conditions in regulation 69(2) are not met for a period of account. 2 No adjustments may be made under regulations 64 and 65 in respect of the interest in the non-reporting fund. 3 But if the condition specified in paragraph (4) is met, losses made by a reporting fund in earlier periods of account on an investment in a non-reporting fund may be set against gains made on the investment in the non-reporting fund to reduce the reportable income of the reporting fund, but only to the extent that the losses— a have not previously had the effect of reducing income for the period of account in which they were incurred, or b have not been used previously to reduce gains arising to the non-reporting fund. 4 The condition specified is that the losses in earlier periods of account were all made during periods in which this Part applied continuously to the reporting fund. Income from non-reporting funds if first case ceases to apply 71 1 This regulation applies if— a a reporting fund has an interest in a non-reporting fund, and b the conditions in regulation 69(2) have been met for an earlier period of account but are no longer met for a later period of account. 2 Regulation 70 applies for the later period of account and for all subsequent periods of account. Adjustments for equalisation arrangements Treatment of reporting funds operating equalisation arrangements 72 1 This regulation applies if a reporting fund operates equalisation arrangements. 2 If a person acquires an interest in the fund by way of initial purchase, the reportable income must be increased by an amount equal to that part of the acquisition price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the acquisition and which is taken into account in determining the acquisition price (“the equalisation amount”). 3 If a participant disposes of an interest in the fund by way of redemption, the reportable income must be reduced by an amount equal to that part of the redemption price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the redemption and which is taken into account in determining the redemption price. 4 For the purposes of these Regulations a person acquires an interest in an offshore fund by way of initial purchase if the acquisition is by way of subscription for or allotment of new shares, units or other interests issued or created by the fund or by way of direct purchase from the managers of the fund acting in their capacity as managers of the fund. 5 For the purposes of this regulation a person disposes of an interest in a fund by way of redemption if the disposal is by way of cancellation of the units, shares or other interest or by way of direct sale to the managers of the fund acting in their capacity as managers of the fund. Adjustments where funds do not operate equalisation arrangements Reporting Funds not operating equalisation: income adjustments based on reportable income for computation periods 72A 1 This regulation applies if a reporting fund does not operate equalisation arrangements and— a the fund has given a statement under regulation 53(1)(k) that it intends to make income adjustments in a reporting period on the basis of reportable income, or b regulation 72B(7) applies. 2 The reportable income of the fund for a reporting period is the sum of the reportable income per unit for all the computation periods in the reporting period multiplied by the number of units in the fund in issue at the end of the reporting period. 3 But if the sum results in a negative amount, the reportable income for that period is nil. 4 Where a period of account consists of two reporting periods, the reportable income for the period of account is the sum of the reportable income for both those reporting periods. 5 The reportable income per unit for a computation period is calculated by dividing the reportable income of the fund for the computation period by the average number of units in the fund in issue during the computation period. 6 For the purposes of paragraph (5), the reportable income of the fund for a computation period means the reportable income of the fund for that period computed in accordance with this Chapter (ignoring regulation 63(5) and this regulation) and Chapter 6 of this Part. 7 In the computation referred to in paragraph (6), this Chapter and Chapter 6 of this Part apply as if references to a period of account of the fund were references to a computation period. Reporting Funds not operating equalisation: income adjustments based on accounting income for computation periods 72B 1 This regulation applies if a reporting fund does not operate equalisation arrangements and the fund has given a statement under regulation 53(1)(k) that it intends to make income adjustments in a reporting period on the basis of accounting income. 2 The reportable income of the fund for a reporting period is calculated as follows— ( A I U × R I / A I ) × U where— AIU is the sum of the accounting income per unit for all the computation periods in the reporting period, RI is the reportable income of the fund for the reporting period computed in accordance with this Chapter (ignoring this regulation), Chapter 6 of this Part and regulation 93, AI is the sum of accounting income for all the computation periods in the reporting period, and U is the number of units in the fund in issue at the end of the reporting period. This is subject to paragraphs (6) and (7). 3 Where a period of account consists of two reporting periods, the reportable income for the period of account is the sum of the reportable income for both those reporting periods. 4 But if the sum results in a negative amount, the reportable income for that period is nil. 5 The accounting income per unit for a computation period is calculated by dividing accounting income for the computation period by the average number of units in the fund in issue during the computation period. 6 Where RI is zero the reportable income per unit of the fund for a reporting period is zero. 7 Where the difference in the amount of reportable income per unit for any reporting period in a period of account calculated using this method and the amount of reportable income per unit for that reporting period calculated on the basis of reportable income is or is likely to be more than 10% of the latter of those amounts— a the fund must make income adjustments in that and future periods of account on the basis of reportable income, and b the manager must give notice to HMRC of the change in the method of income adjustment with the information provided to HMRC in relation to that period under regulation 106 (reporting requirements). 8 In this Part “accounting income” means an amount proportionally related to the reportable income of the fund determined from the interim or management accounts of the fund, but this amount must not be less than zero. Supplementary provisions: average number of units and computation period 72C 1 For the purposes of regulations 72A(5) and 72B(5), the average number of units in the fund in issue during the computation period is the sum of the units in the fund in issue during the period after each unit has been multiplied by the fraction of the period for which it is held. 2 In this Part a “computation period” means a period determined by a fund in accordance with the following rules. Rule 1 A new computation period must start— at the beginning of a reporting period, and immediately after the end of a previous computation period. Rule 2 A computation period must end— at the end of a reporting period, and at the end of a period in relation to which income is allocated to participants for distribution or accumulation. Rule 3 If a reporting period consists of more than one computation period those periods must be of approximately equal length. CHAPTER 6 TRANSACTIONS BY CERTAIN REPORTING FUNDS WHICH ARE NOT TREATED AS TRADING Conditions to be met by reporting funds for this Chapter to apply Introductory 73 1 A reporting fund meets the conditions for this Chapter to apply in respect of a period of account if it meets— a the equivalence condition (see regulation 74), and b the genuine diversity of ownership condition (see regulations 75 and 76). 2 In this Part a “ diversely owned fund ” means a reporting fund in respect of which the conditions mentioned in paragraph (1) are met for a period of account. The equivalence condition 74 1 The equivalence condition is met if the fund meets condition A , B or C throughout the period of account. 2 Condition A is that the fund is recognised by the Financial Conduct Authority within the meaning of section ... ... 272 of FISMA 2000. 3 Condition B is that the fund is a UCITS fund. 4 Condition C is that the fund— a is constituted in another EEA state and authorised by the competent authority in that state to market to retail or professional investors, and b is required either by the competent authority in that state or by other binding arrangements to limit its borrowing and its exposure under derivative contracts and forward transactions to 100% of its net asset value. 5 In paragraph (4), the competent authority in an EEA state is the authority designated in accordance with Article 97 of Council Directive 2009/65/ EC in relation to that fund. The genuine diversity of ownership condition 75 1 The genuine diversity of ownership condition is met if the fund meets ,or, in relation to a fund constituted by a class of interests in the main arrangements, the main arrangements meet, conditions A to C throughout the period of account. 2 Condition A is that the fund produces documents, available to investors and to HMRC, which contain— a a statement specifying the intended categories of investor, b an undertaking that interests in the fund will be widely available, and c an undertaking that interests in the fund will be marketed and made available in accordance with the requirements of paragraph (4)(a). 3 Condition B is— a that the specification of the intended categories of investor do not have a limiting or deterrent effect, and b that any other terms or conditions governing participation in the fund do not have a limiting or deterrent effect. 4 Condition C is— a that interests in the fund must be marketed and made available— i sufficiently widely to reach the intended categories of investors, and ii in a manner appropriate to attract those categories of investors, and b that a person who falls within one of the intended categories of investors can, upon request to the manager of this fund, obtain information about the fund and acquire units in it. 5 A fund also meets the genuine diversity of ownership condition if— a an investor in the fund is an offshore fund, an open-ended investment company or an authorised unit trust scheme (“the feeder fund”), b conditions A to C are met in relation to the fund after taking into account— i the fund documents relating to the feeder fund, and ii the intended investors in the feeder fund, and c the fund and the feeder fund have the same manager (or proposed manager). The genuine diversity of ownership condition: further provisions 76 1 For the purposes of regulation 75(3) a limiting or deterring effect means an effect which— a limits investors to a limited number of specific persons or specific groups of connected persons, or b deters a reasonable investor falling within one of the intended categories of investor from investing in the fund. 2 Condition C (see regulation 75(4) shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless— a the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and b a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity. 3 For the purposes of this regulation— a sections 993 and 994 of ITA 2007 (connected persons) apply in the case of a person chargeable to income tax, and b section 839 of ICTA (connected persons) applies in the case of a person chargeable to corporation tax. Clearances in relation to the equivalence and genuine diversity of ownership conditions Who may apply for clearance 77 1 The following may apply for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition— a the manager of an eligible offshore fund; b the manager of a non-reporting fund who makes an application under regulation 52. 2 If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the applicant may apply for clearance that the fund will meet the equivalence condition and the genuine diversity of ownership condition on its establishment. Procedure for obtaining clearance 78 1 The relevant person specified in regulation 77 (the “relevant person”) must apply in writing to HMRC for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition. 2 A document submitted in accordance with paragraph (1) must be accompanied by the documents specified in regulation 75(2). 3 HMRC may require the relevant person to provide further particulars if HMRC believe that full particulars of the fund have not been provided. 4 HMRC must notify the relevant person within 28 days beginning with the day on which HMRC receive the documents mentioned in paragraphs (1) and (2) (or, as the case may be, the further particulars mentioned in paragraph (3))— a giving clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition, b giving that clearance subject to conditions, or c refusing to give that clearance. Circumstances in which clearance may not be relied upon 79 1 An offshore fund (and investors in that fund) may not rely on a clearance given under regulation 78 if any of conditions A to D is met. 2 Condition A is that at the beginning of the first period of account of the fund to which the clearance relates (and at the beginning of each subsequent period of account), a relevant statement in the instrument constituting the fund or in its prospectus in issue for the time being is not in accordance with a relevant statement in the documents considered by HMRC before giving clearance. 3 Condition B is that the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulations 75 and 76). 4 Condition C is that the fund acts or is operated in contravention of a relevant statement in the instrument constituting the fund or in its prospectus. 5 Condition D is that the documents specified in regulation 75(2) are materially amended. 6 Condition D does not apply if the relevant person specified in regulation 77 has obtained a clearance given under regulation 78 which applies to the documents in their amended form. 7 For the purposes of condition D, a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the equivalence condition or the genuine diversity of ownership condition in relation to any period of account. Investment transactions carried out by diversely owned funds Treatment of investment transactions carried out by diversely owned funds 80 1 This regulation applies if a diversely owned fund carries out an investment transaction in an accounting period. 2 The investment transaction is treated as a non-trading transaction. 3 For the purposes of these Regulations an “investment transaction” is an investment transaction specified by regulation 2 of the Investment Transactions (Tax) Regulations 2014. Meaning of “investment transaction” 81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “relevant contract”: general 82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “relevant contract”: options 83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “relevant contract”: futures 84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options and futures: further provisions 85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “relevant contract”: contracts for differences 86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interpretation of regulation 81(c) 87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “units in a collective investment scheme” 88 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meaning of “transaction in a carbon emission trading product” 89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 6A TRANSPARENT REPORTING FUNDS Transparent reporting funds 89A 1 This Chapter explains how reportable income is computed in the case of a transparent reporting fund. 2 For the purposes of these Regulations a “transparent reporting fund” is a reporting fund which is a transparent fund. Reportable income: general 89B 1 A transparent reporting fund must provide a computation of its reportable income for a period of account. 2 The reportable income of a transparent reporting fund for a period of account is comprised of— a each of the separate sums of income for the period which fall within paragraph (a) or (b) of regulation 11 (meaning of transparent funds), and b the adjustments made to those sums in accordance with regulations 89C to 89E. 3 For the purposes of this Part the adjustments referred to in paragraph (2)(b) are excesses of reported income of the fund over the sums which form part of the income of the fund within paragraph (2)(a). Adjustment in relation to income from other reporting funds 89C 1 This regulation applies if a transparent reporting fund (“ TRF ”) has an interest in another reporting fund (“ RF ”). 2 The reportable income of TRF in relation to that interest shall include the excess (if any) of the income reported by RF in respect of TRF ’s interest in RF over the amount distributed by RF in relation to that interest. 3 The excess is treated as reportable income of TRF for the period of account in which the fund distribution date of RF falls. 4 If RF does not make a report available in accordance with regulation 90(5), TRF must— a include its best estimate of reported income from RF as an adjustment to the computation of its reportable income in relation to that interest for the period of account in which the latest possible fund distribution date for RF falls (to the extent that any such amount has not already been recognised in the computation of TRF ’s reportable income for that or any earlier period of account), and b make any necessary corrections to its best estimate in its computation of reportable income for the first later period of account in which it has sufficient information to make those corrections. Adjustment in relation to income from non-reporting funds: first case 89D 1 This regulation applies if— a a transparent reporting fund has an interest in a non-reporting fund, and b the conditions in paragraph (2) are met for a period of account. 2 The conditions are that— a the transparent reporting fund has access to the accounts of the non-reporting fund; b the transparent reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund; and c the transparent reporting fund can reasonably expect to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund. 3 Regulation 89C applies as if the transparent reporting fund were TRF and the non-reporting fund were RF . 4 For the purposes of the computation mentioned in paragraph (2)(b), regulation 80 applies if (and only if) the non-reporting fund is a UCITS fund. Adjustment in relation to income from non-reporting funds: second case 89E 1 This regulation applies if a transparent reporting fund has an interest in a non-reporting fund, but the conditions in regulation 89D(2) are not met for a period of account. 2 The reportable income of the transparent reporting fund for a period of account in relation to that interest shall include an amount equal to the increase in the fair value of the interest in the non-reporting fund in that period. 3 But if the condition specified in paragraph (4) is met, decreases in the fair value of that interest in earlier periods of account may be set against the increase referred to in paragraph (2) to reduce the amount of the increase, but— a not to below zero, and b only to the extent that the decreases in fair value have not previously had the effect of reducing the amount of a fair value increase. 4 The condition specified is that the decrease in fair value in earlier periods of account all occurred during periods in which this Part applied continuously to the transparent reporting fund. 5 In this regulation “fair value” in relation to an interest in a non-reporting fund means the amount which, at the time the value is to be determined, is the amount for which the interest could be exchanged between knowledgeable and willing parties dealing at arm’s length. CHAPTER 7 REPORTS TO PARTICIPANTS Report to participants for a reporting period 90 1 A reporting fund must make a report available to each relevant participant for each reporting period. 2 For the purposes of these Regulations a report is made available if the fund— a sends the report to a relevant participant by post, b sends the report to a relevant participant by means of an electronic communications service, c makes the report available on a website accessible to relevant participants and to HMRC, or d publishes the report in a newspaper which is published in English in the United Kingdom and readily available in all parts of the United Kingdom. 3 In this regulation “ relevant participants ” means participants who— a are resident in the United Kingdom, or b are reporting funds, during any part of the reporting period. 4 If the fund does not provide the report to a relevant participant by sending it to the participant by post, the fund must, if so required by the participant, make the report available to the participant in some further manner (whether or not that further manner is also specified in regulation 90(2)) as the fund and the participant may agree. 5 The reporting fund must make the report available within a period of six months beginning with the day immediately following the final day of the reporting period. 6 The report must be in English. Meaning of “reporting period” 91 In these Regulations a “reporting period” of a reporting fund means a period determined in accordance with the following rules— First rule If the reporting fund's period of account is twelve months or less, the reporting period is the same as the period of account. Second rule If the reporting fund's period of account is more than twelve months, there are two reporting periods. The first reporting period is a period consisting of the first twelve months of the period of account. The second reporting period is a period consisting of the remainder of the period of account. Contents of report to participants : non-transparent funds 92 1 In the case of reporting funds which are not transparent funds, the report to participants for a reporting period must include the following information— a the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period; b the amount per unit of any excess treated as additional distributions made to participants in the fund in respect of the reporting period; c the dates on which distributions were made; d the fund distribution date (see regulation 94(4)); e a statement whether or not the fund remains a reporting fund at the date the fund makes the report available. f if the fund operates full equalisation arrangements and has not given a statement under regulation 50A(b)(i), the equalisation amount per unit of interest in the fund in relation to any interest acquired by way of initial purchase in the reporting period. 2 In these Regulations the “reported income” of a reporting fund for a reporting period means the reportable income of the fund for the reporting period, computed by or on behalf of the fund, and provided, in the report for the reporting period, to the participants in the fund. 3 For the purposes of paragraph (1)— a the amount in paragraph (b) is the amount of any excess specified in regulation 94(1) divided by the number of units in the fund in issue at the end of the reporting period. b the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period must be computed at the time the distribution is made, ba subject to paragraphs (3A) and (3B), the fund may chose to calculate the equalisation amount per unit of interest in the fund either on the basis of— i the sum of all the equalisation amounts in relation to all acquisitions by way of initial purchase in the reporting period divided by the total number of units acquired by way of initial purchase in the period, or ii the equalisation amount in relation to the acquisition by the participant to whom the report is made available divided by the number of units acquired on that acquisition, and c the amount per unit of interest in the fund must be expressed to at least four decimal places of a pound (or other currency unit) of value per unit. 3A A fund cannot change the basis for calculating the equalisation amount per unit of interest in the fund more than once in three successive reporting periods. 3B In any reporting period all reports to participants must use the same basis for calculating the equalisation amount per unit of interest in the fund . 4 If the amount of the reported income per unit of interest in the fund for the reporting period is equal to, or less than, the amount actually distributed to participants per unit of interest in the fund in respect of the reporting period, the amount to be stated for the purposes of paragraph (1)(b) is nil. 5 This regulation is subject to regulation 93. Funds which do not operate equalisation arrangements: income adjustments on the basis of reported income 92A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds which do not operate equalisation arrangements: income adjustments on the basis of accounting income 92B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds which do not operate equalisation arrangements: computation period 92C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents of reports to participants: transparent reporting funds 92D In the case of transparent reporting funds, the report to participants for a reporting period must— a contain sufficient information to enable those participants to meet their tax obligations in the United Kingdom with respect to their interests in the fund, and b include a statement whether or not the fund remains a reporting fund at the date the fund makes the report available. Lengthy periods of account where full information not available 93 1 This regulation applies if a reporting fund— a has a period of account which is longer than twelve months, and b has difficulty in computing its reportable income for the reporting period constituting the first twelve months of that period of account (the “relevant reporting period”). 2 For the purpose of preparing its report to participants for the relevant reporting period, the fund may elect— a to compute its reportable income based on such information as is reasonably available, or b to make a just and reasonable apportionment of the income of the period of account. 3 The computation of reportable income for the reporting period following the relevant reporting period must include all amounts not accounted for in the relevant reporting period. CHAPTER 8 THE TAX TREATMENT OF PARTICIPANTS IN REPORTING FUNDS Tax treatment of the reported income of the fund in the hands of participants Reported income: general provisions 94 1 In the case of a reporting fund which is not a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the distributions made by the fund in respect of the reporting period were additional distributions made to the participants in the fund in proportion to their rights. 2 In the case of a reporting fund which is a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the income of the fund for the reporting period were additional income of the participants in the fund in proportion to their rights. 2A But to the extent that the participant’s rights in the fund are rights to which regulation 30 (rights in certain existing holdings) applies, the excess specified in paragraphs (1) and (2) shall be reduced proportionately. 3 The excess specified in paragraphs (1) and (2) is treated as made, on the fund distribution date, or on such earlier date as the reported income in respect of that reporting period is recognised in the participant’s accounts, to participants holding an interest in the fund at the end of the reporting period. 3A If— a a participant disposes of an interest in a reporting fund in a reporting period (“the earlier period”), and b section 106A of TCGA 1992 (identification of securities: capital gains tax) applies to identify the whole or any part of that interest with an interest acquired in the next reporting period, then, for the purposes of paragraph (3), the disposal of the interest so identified shall be ignored and the participant shall be treated as holding that interest at the end of the earlier period. 4 In these Regulations the “fund distribution date” for a reporting period of a reporting fund means the date six months following the last day of the reporting period . Equalisation amounts not treated as distributions 94A 1 This regulation applies if— a a participant has acquired by way of initial purchase an interest in a reporting fund, and b the reporting fund operates full equalisation arrangements. 2 Where this regulation applies, distributions are reduced in accordance with either option 1 or option 2. Option 1 Under this option— the amount of any actual distributions to the participant in respect of the reporting period is reduced by the equalisation amount, and the amount of any excess treated as additional distributions made to the participant is reduced by the amount, if any, by which the equalisation amount exceeds the amount of any actual distributions to the participant in respect of the reporting period. Option 2 Under this option— the amount of any excess treated as additional distributions made to the participant is reduced by the equalisation amount, and the amount of any actual distributions to the participant in respect of the reporting period is reduced by the amount, if any, by which the equalisation amount exceeds the excess. 3 But the amount of any excess treated as additional distributions or any actual distributions shall not be reduced to below nil. 4 For the purposes of paragraph (2) the excess is the amount treated as additional distributions made to the participant in accordance with regulation 94(1) and (2). Participants chargeable to income tax: corporate funds 95 1 This regulation applies if— a a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period, and b the fund falls within section 40A(2)(a) of FA 2008 . 2 This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant. 3 If section 378A of ITTOIA 2005 (offshore fund distributions) applies to any amount falling within paragraph (1) or (2), the amount is charged to income tax in accordance with that section. 4 If paragraph (3) does not apply to any amount falling within paragraph (1) or (2), but the participant is entitled to a tax credit on receiving a distribution falling within paragraph (1), section 397A of ITTOIA 2005 (savings and investment income: dividends from non-UK resident companies) also applies to the excess falling within paragraph (2). Participants chargeable to income tax: other non-transparent funds 96 1 This regulation applies if— a a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period, b the fund falls within paragraph (b) or (c) of section 40A(2) of FA 2008, and c the fund is not a transparent fund. 2 This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant. 3 Any amount to which paragraph (1) or (2) applies is charged to income tax— a under section 378A of ITTOIA 2005 (offshore fund distributions), or b (if that section does not apply) under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 (income charged and person liable) do not apply. Participants chargeable to income tax: transparent funds 97 1 This regulation applies if— a a reporting fund is a transparent fund, and b some or all of the excess specified in regulation 94(2) is treated as income of a participant by virtue of that provision. 2 Any amount to which paragraph (1) applies is charged to income tax under Chapter 8 of Part 5 of ITTOIA 2005 as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 do not apply. Participants chargeable to corporation tax 98 1 This regulation applies if some or all of the excess specified in regulation 94 is treated as made to a participant chargeable to corporation tax. 2 The amount is exempt if it would be exempt if it were an actual distribution made by the fund. Disposals and deemed disposals of interests Disposals of interests 99 1 Subject to paragraph (7), if a participant has an interest in a reporting fund and disposes of the interest, the participant disposes of an asset for the purposes of tax in respect of chargeable gains. 2 For the purposes of the disposal referred to in paragraph (1), an amount equal to the accumulated undistributed income is treated as expenditure— a given for the acquisition of the asset, and b falling within section 38(1)(a) of TCGA 1992 (acquisition and disposal costs). 2A But where regulation 94A has applied, the expenditure given for the acquisition of the asset shall be treated as reduced by an amount equal to the amount of any reduction in the actual distribution under regulation 94A(2) . 3 In paragraph (2) the “ accumulated undistributed income ” means the aggregate of amounts specified in regulation 94 on which the participant has been charged to tax under any of regulations 95 to 98. 4 The expenditure mentioned in paragraph (2) is treated as incurred, in the case of each amount referred to in paragraph (3), on the fund distribution date for the reporting period in respect of which the amount is treated as distributed. 5 But if the participant receives an amount in respect of the interest in the reporting fund which is chargeable to income tax, and that amount is received (or treated as received) after the date of the disposal referred to in paragraph (1), the amount is treated as received immediately before that disposal for the purposes of tax in respect of chargeable gains. 6 This regulation is subject to regulation 17. 7 This regulation does not apply where section 103D of TCGA 1992 (application of Act to tax transparent funds) applies. Deemed disposals of interests 100 1 This regulation applies if an offshore fund ceases to be a reporting fund and becomes a non-reporting fund. 2 A participant in the fund may make an election to be treated for the purposes of TCGA 1992— a as disposing of an interest in the reporting fund at the end of that fund's final period of account, and b as acquiring an interest in the non-reporting fund at the beginning of that fund's first period of account. This is subject to paragraph (3). 3 The election mentioned in paragraph (2) may only be made if a report has been made available to the participant under regulation 90 for the reporting fund's final period of account. 4 The disposal referred to in paragraph (2)(a) is treated as made for a consideration equal to the net asset value of the participant's interest in the fund at the end of the period of account for which the final reported income is reported to the participant. 5 The acquisition referred to in paragraph (2)(b) is treated as made for the same amount as the disposal referred to in paragraph (2)(a). 6 If the participant is chargeable to income tax, the election mentioned in paragraph (2) must be made by being included in a return made for the tax year which includes the disposal date. 7 If the participant is chargeable to corporation tax, the election mentioned in paragraph (2) must be made by being included in the participant's company tax return for the accounting period which includes the disposal date. 8 In this regulation— “ company tax return ” has the same meaning as in Schedule 18 to the Finance Act 1998 ; “ disposal date ” means the final day of the reporting fund's final period of account. Charitable companies and charitable trusts Special provisions applying to charitable companies and charitable trusts 101 1 This regulation applies if— a a charitable company is a participant in a reporting fund, or b the trustees of a charitable trust are participants in a reporting fund. 2 No liability to tax arises in respect of any amount which, under regulation 94(1), is treated as distributed to a charitable company or the trustees of a charitable trust. 3 Paragraph (2) of regulation 99 (read with paragraphs (3) and (4) of that regulation) does not apply to the disposal of an interest in a reporting fund by a charitable company or the trustees of a charitable trust. 4 In this regulation “ charity ” and “ charitable company ” have the same meaning as in section 506 of ICTA . Anti-avoidance provisions Treatment of financial traders if conditions specified in regulation 73 are met 102 1 This group of regulations applies if a financial trader holds, or has held, an interest in a diversely owned fund. 2 In this Chapter— “ this group of regulations ” means this regulation and regulations 103 to 105; “ financial trader ” has the meaning given by regulation 105. 3 In computing the trading profits or losses of the financial trader for the relevant period, the following amounts must be brought into account— a all distributions received by or credited to the financial trader in respect of the interest for the relevant period, and b any amount required to be brought into account under regulation 103. 4 In this group of regulations “ relevant period ” means— a in the case of a financial trader within the charge to income tax, a period of account, and b in the case of a financial trader within the charge to corporation tax, an accounting period. 5 In this group of regulations references to distributions are subject to section 130 of CTA 2009 (insurers receiving distributions etc). Amounts brought into account in computing trading profits or losses of financial traders 103 1 The only amounts that may be brought into account in computing the trading profits or losses of the financial trader in respect of the interest in the reporting fund for the relevant period are— a amounts within regulation 102(3)(a), and b amounts brought into account in accordance with Cases A to D. 2 Paragraph (1) is subject to section 130 of CTA 2009 and to regulation 104. 3 Case A applies if the financial trader holds the interest at the beginning of the relevant period and continues to hold the interest throughout the relevant period. If Case A applies, the amount to be brought into account is the difference between the market value of the interest at the end of the relevant period and the market value of the interest at the end of the period immediately preceding the relevant period. 4 Case B applies if the financial trader acquires the interest during the relevant period and continues to hold the interest throughout the remainder of the relevant period. If Case B applies, the amount to be brought into account is the difference between the market value of the interest at the end of the relevant period and the acquisition cost of the interest. 5 Case C applies if the financial trader holds the interest at the beginning of the relevant period and disposes of the interest during the period. If Case C applies the amount to be brought into account is the difference between the disposal value of the interest and the market value of the interest at the end of the period immediately preceding the relevant period. 6 Case D applies if the financial trader acquires and disposes of the interest during the relevant period. If Case D applies the amount to be brought into account is the difference between the disposal value of the interest and its acquisition cost. Interests not within regulation 103 104 1 Regulation 103 does not apply in respect of an interest in a reporting fund if— a conditions A and B are met, or b condition C is met. 2 Condition A is that the interest forms part of the financial trader's stock in trade and all the profits and losses, including distributions, arising in respect of the interest are included in the computation of the financial trader's trading profits for the relevant period. 3 Condition B is that the interest is accounted for under generally accepted accounting practice on the basis of fair value accounting. 4 Condition C is that the interest is a relevant holding in respect of which the provisions of section 490 of CTA 2009 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights) apply in relation to the financial trader. 5 In paragraph (4) a “ relevant holding ” means— a any rights under a unit trust scheme, b an interest in an offshore fund, or c any shares in an open-ended investment company. Meaning of “financial trader” 105 1 In this Chapter “ financial trader ” means a person who is carrying on a business which is— a a banking business, b an insurance business, or c a business consisting wholly or in part of dealing in trading assets such that any profit on such assets would form part of the trading profits of that business. This is subject to paragraphs (2) and (3). 2 For the purposes of paragraph (1)(b) an insurance business does not include life assurance business carried on by an insurance company and if such a company carries on both life assurance business and any other insurance business the company must not be treated as a financial trader in respect of the life assurance business. 3 If— a a financial trader (“A”) directly or indirectly transfers trading assets to a diversely owned fund under, or as part of, an arrangement which has an unallowable purpose, and b a connected person (“B”)— i holds an interest in the diversely owned fund at the time of the transfer, or ii directly or indirectly acquires an interest in the diversely owned fund at a later time, B is treated as being a financial trader in relation to that interest. 4 In this regulation “ trading assets ” means— a stocks or shares; b a relevant contract (construed in accordance with regulations 82 to 86); c a loan relationship (construed in accordance with regulation 87); d units in a collective investment scheme (construed in accordance with regulation 88); e securities of any description not falling within any of sub-paragraphs (a) to (d); f foreign currency; or g a carbon emission trading product (construed in accordance with regulation 89); a profit on the sale of which would form part of the trading profits of the financial trader. 5 An arrangement includes any scheme, understanding or transaction of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions. 6 An arrangement has an unallowable purpose if the main purpose or one of the main purposes for either A or B being party to the arrangement is to obtain a tax advantage or an income tax advantage for any person. 7 In paragraph (6)— “ tax advantage ” has the meaning given by section of 840ZA of ICTA ; “ income tax advantage ” has the meaning given by section 683 of ITA 2007. CHAPTER 9 THE PROVISION OF INFORMATION TO HMRC Reporting requirements 106 1 A reporting fund must provide the following information to HMRC in relation to each period of account— a subject to paragraph (3), its audited accounts ...; b its computation of its reportable income for the period of account based on its audited accounts (see Chapter 5 or 6A, as the case may be ); c a copy of the report made available to participants for each reporting period falling within the period of account (including, for each reporting period, the information specified in regulation 92(1) or 92D, as the case may be ); d the reported income of the fund for each reporting period falling within the period of account; e the amount actually distributed to participants in respect of each reporting period falling within the period of account; f the number of units in the fund in issue at the end of each reporting period falling within the period of account; g the amount of the reported income per unit of interest in the fund in respect of each reporting period falling within the period of account; h a declaration confirming that the fund has complied with the obligations specified in regulations 53 and 58. 2 The information specified in paragraph (1) must be provided within six months of the end of the period of account. 3 A reporting fund may provide unaudited accounts for a period of account if HMRC are satisfied, in relation to that period, that— a it would be impossible to provide audited accounts or unreasonable to expect them to be provided, and b there is no reason to believe that the unaudited accounts cannot be relied upon for the purposes of calculating reportable income. Information obligations of reporting funds 107 1 HMRC may give notice requiring a reporting fund or its managers, within such time, not being less than 42 days, as is specified in the notice, to provide any information, particulars or documents, in the possession or power of the reporting fund or its managers, as HMRC may reasonably require for the purposes of determining whether the fund has met, or continues to meet, its obligations under Chapter 3 of this Part. 2 Before a notice is given to a reporting fund by HMRC under paragraph (1), the fund must have been given a reasonable opportunity to deliver the information, particulars or documents, or to make them available (the “initial request”); and HMRC must not give notice under paragraph (1) until the initial request has been given to the fund. 3 HMRC must give the initial request to the reporting fund or its manager within a period of one year beginning with the day that the fund provides the information specified in regulation 106(1). 4 HMRC may extend the time specified in paragraph (1) if they consider it reasonable to do so. 5 A person to whom a notice under paragraph (1) is given may appeal. 6 The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice under paragraph (1) is given. 7 On an appeal, the tribunal may uphold, vary or quash the notice. CHAPTER 10 BREACHES OF REPORTING FUND REQUIREMENTS Types of breaches 108 1 This Chapter applies if a reporting fund is in breach of a requirement imposed in this Part. 2 A breach of a requirement imposed in this Part is— a a minor breach, or b a serious breach. 3 For the purposes of these Regulations, a breach of a requirement imposed in this Part is a “serious breach” if it is— a a breach specified as a serious breach in a provision of this Chapter, or b a breach which is not a minor breach. 4 For the purposes of these Regulations, a breach of a requirement imposed in this Part is a “minor breach” if it is a breach (other than a breach specified as a serious breach in a provision of this Chapter)— a for which there is a reasonable excuse, or b which is inadvertent and remedied as soon as reasonably possible. This paragraph is subject to the following provisions of this regulation. 5 For the purposes of this Part a minor breach is not regarded as a breach if the reporting fund corrects the breach without any HMRC intervention. 6 For the purposes of these Regulations there is an “ HMRC intervention ” in relation to a reporting fund if HMRC request the fund to provide them with information relating to a requirement imposed in this Part. This is subject to paragraph (7). 7 There is no HMRC intervention in relation to a reporting fund if— a the fund takes the initiative to correct a minor breach, and b HMRC request the fund to provide them with information so that they may deal with the initiative taken. 8 Regulation 109 deals with the consequences of minor breaches. 9 Regulation 114 deals with the consequences of serious breaches. Consequences of minor breaches 109 1 If a reporting fund is in breach of a requirement imposed in this Part and the breach is a minor breach, the fund continues to be treated as a reporting fund. 2 Paragraph (1) is subject to the following provisions of this Chapter. 3 If paragraph (1) applies on four separate occasions in a period of ten years beginning with the first day of the period of account in which the first breach occurs, the fourth breach is a serious breach. 4 If a single event results in more than one minor breach within a single period of account, there is only one minor breach in that period of account for the purposes of this Chapter. Differences between reported income and reportable income 110 1 This regulation applies if there is a difference between— a the reportable income of a reporting fund for a period of account, and b the reported income of the fund for all reporting periods comprised in the period of account. 2 The following amounts must be determined for each reporting period comprised in the period of account— a the amount of the reported income for the reporting period, and b the amount of the reportable income for the period of account that is referable to that reporting period. 3 If the difference between the two amounts specified in paragraph (2) is 10% or less of the reportable income, there is no breach of a requirement imposed in this Part. 4 If the difference between the two amounts specified in paragraph (2) is more than 10% but not more than 15% of the reportable income— a an amount equal to the difference must be added to the reported income— i for the reporting period in which the error is established, or ii for the following reporting period; or b the reporting fund must make a supplementary report for the period of account in which the difference occurs before the end of a period of three months beginning immediately after the period of account in which the error is established. 5 If the difference between the two amounts specified in paragraph (2) is more than 15% of the reportable income, the reporting fund must make a supplementary report to participants for the period of account in which the difference occurs before the end of a period of three months beginning immediately after the period of account in which the error is established. 6 The supplementary report mentioned in paragraphs (4) and (5) must be made to those persons who were participants in the fund at the end of the period of account in which the difference occurs. 7 If paragraph (4) or (5) applies and the action specified in the applicable paragraph is taken as soon as reasonably possible, there is a minor breach. 8 If paragraph (4) or (5) applies but the action specified in the applicable paragraph is not taken as soon as reasonably possible, there is a serious breach. 9 For the purposes of paragraph (4) an error is established for a reporting period if, during that reporting period— a HMRC conclude— i that an error has been made in respect of an earlier reporting period, and ii that, as a result of the error, the difference between the reported income for the reporting period and the reportable income for the period of account in which the reporting period is comprised is more than 10% but not more than 15%; and b HMRC give notice to the reporting fund of the matters specified in sub-paragraph (a). 10 For the purposes of paragraph (5) an error is established for a period of account if, during that period of account— a HMRC conclude— i that an error has been made in respect of an earlier period of account, and ii that, as a result of the error, the difference between the reported income and the reportable income for the period of account is more than 15%; and b HMRC give notice to the reporting fund of the matters specified in sub-paragraph (a). Provision of report that is incorrect or incomplete 111 1 This regulation applies if— a a reporting fund provides a report specified in paragraph (2) that is incorrect or incomplete, and b regulation 110 does not apply. 2 The reports specified are— a the report to participants in accordance with the requirements of Chapter 7 of this Part, and b the report to HMRC in accordance with the requirements of Chapter 9 of this Part. 3 If the reporting fund provides a correct report as soon as reasonably possible, there is a minor breach. 4 If the reporting fund does not provide a correct report as soon as reasonably possible, there is a serious breach. Cases where information is not provided 112 1 This regulation applies if, on the relevant date, a reporting fund has not provided— a the information specified in regulation 106(1) to HMRC in relation to a period of account (the “requisite period of account”), and b a report to each participant for each reporting period comprised in the requisite period of account. 2 In paragraph (1) the “ relevant date ” means the day immediately following the expiry of the period of six months beginning immediately after the end of the requisite period of account. 3 If the reporting fund provides the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of four months beginning with the relevant date, the breach is not regarded as a breach for the purposes of this Part. 4 If the reporting fund does not provide the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of four months beginning with the relevant date but does provide that information and those reports within a period of twelve months beginning with the relevant date, there is a minor breach. 5 If the reporting fund does not provide the information mentioned in paragraph (1)(a) and the reports mentioned in paragraph (1)(b) within a period of twelve months beginning with the relevant date, there is a serious breach. Serious breaches 113 1 There is a serious breach if condition A, B, C or D is met. 2 Condition A is that a period of account of a reporting fund exceeds 18 months. 3 Condition B is that a reporting fund has used an accounting practice which— a is not in accordance with international accounting standards, and b has not been approved by HMRC (see regulations 53, 55 and 61). 4 Condition C is that— a a reporting fund fails, or its managers fail, to provide the information, particulars or documents within the time specified in a notice given under regulation 107(1), and b there is no appeal against the notice within the time specified in regulation 107(6). 5 Condition D is that— a on an appeal against a notice given under regulation 107(1), the tribunal varies the notice, b a reporting fund fails, or its managers fail, to provide the information, particulars or documents within the time specified in the notice (as so varied), and c there is no appeal against the decision of the tribunal. Consequences of serious breaches 114 1 This regulation applies if conditions A and B are met. 2 Condition A is that— a a reporting fund is in breach of a requirement imposed in this Part, and b the breach is a serious breach. 3 Condition B is that HMRC give notice to the fund— a stating that the fund is in breach of a requirement imposed in this Part and that the breach is a serious breach, and b specifying the serious breach. 4 The fund is treated as a non-reporting fund for the reporting period in which HMRC give the notice and for all subsequent periods. This is subject to paragraphs (5) and (6). 5 If regulation 113(4) applies, the fund is treated as a non-reporting fund for the reporting period in which the notice is given and for all subsequent periods. 6 If regulation 113(5) applies, the fund is treated as a non-reporting fund for the reporting period in which the notice as varied is given and for all subsequent periods. Appeal against exclusion from the reporting fund regime 115 1 If HMRC give notice to a fund under regulation 114(3) (an “exclusion notice”), the fund may appeal. 2 The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the exclusion notice is given. 3 On an appeal, the tribunal may uphold or quash the exclusion notice. CHAPTER 11 LEAVING THE REPORTING FUND REGIME Termination by notice given by reporting fund 116 1 If a reporting fund gives a notice under this regulation specifying a day (the “specified day”) at the end of which this Part is to cease to apply to the fund, this Part shall cease to apply to the fund at the end of that day. 2 The specified day must be the last day of a period of account of the reporting fund. 3 A notice under paragraph (1) must be given in writing to HMRC before the specified day. 4 If the fund gives a notice under paragraph (1), the fund must also make the notice available to each participant before the specified day. 5 Paragraphs (2) to (4) of regulation 90 apply to determine whether the notice is made available to a participant in the same way as they apply to determine whether a report for a reporting period is made available to a participant. 6 This regulation is subject to regulation 117. Reporting fund not complying with requirements 117 1 This regulation applies if— a a reporting fund gives a notice under regulation 116, and b the fund has not complied with all requirements imposed in this Part for all periods during which it was a reporting fund. 2 For the purposes of these Regulations the fund is treated as a fund to which regulation 114 has applied and not as a fund to which regulation 116 has applied. CHAPTER 12 CONSTANT NAV FUNDS Interpretation Meaning of “constant NAV fund” 118 1 In these Regulations a “ constant NAV fund ” means an offshore fund that meets conditions A and B. 2 Condition A is that the net asset value of the fund (expressed in the currency in which units are issued) will not fluctuate by more than an insignificant amount throughout the fund's existence. 3 Condition B is that condition A is met as a result of— a the nature of the fund's assets, and b the frequency with which the fund distributes its income. Modified application of this Part General 119 In the case of a constant NAV fund, Chapters 2 to 11 of this Part apply with the following modifications. Modified application of Chapter 2 120 1 Chapter 2 applies with the following modifications. 2 In regulation 53 for paragraph (1) substitute— 1 An application must include the following— a a statement of the first period of account for which it is proposed that the fund should be treated as a constant NAV fund for the purposes of these Regulations, b a statement that the fund is, or will be, a constant NAV fund at the beginning of that first period of account, and c an undertaking to notify HMRC if the offshore fund ceases to be a constant NAV fund. . 3 Regulations 55 and 56 do not apply. Modified application of Chapter 3 121 1 Chapter 3 applies with the following modifications. 2 For regulation 57 substitute— Effects of entry into the reporting fund regime 57A 1 Unless HMRC reject an application because an item specified in regulation 53(1) has not been supplied, the offshore fund becomes a constant NAV fund on whichever is the later of— a the first day of the first period of account mentioned in regulation 53(1)(a), or b the day on which the fund is established. 2 This Part applies to the constant NAV fund and to its participants on and after the date specified in paragraph (1). 3 Once this Part has begun to apply to a constant NAV fund, it shall continue to apply unless and until the fund notifies HMRC that it has ceased to be a constant NAV fund. 4 See regulation 108A for the consequences where the net asset value of the fund has risen by more than an insignificant amount and the fund has not notified HMRC that it has ceased to be a constant NAV fund. . 3 Regulation 58 does not apply. Disapplication of Chapters 4 to 9 122 Chapters 4 to 9 do not apply. Modified application of Chapter 10 123 For regulations 108 to 115 substitute— Consequences of rise in net asset value of fund 108A 1 This regulation applies if— a this Part applies to a constant NAV fund, b the net asset value of the fund (expressed in the currency in which units are issued) has risen by more than an insignificant amount, and c the fund has not notified HMRC that it has ceased to be a constant NAV fund. 2 But this regulation does not apply if the net asset value of a constant NAV fund (expressed in the currency in which units are issued) has fallen by more than an insignificant amount. 3 A participant who disposes of an interest in the fund and who makes a chargeable gain on the disposal is treated as making an offshore income gain. . Disapplication of Chapter 11 124 Chapter 11 does not apply. PART 3A ANNUAL PAYMENTS TO NON-RESIDENTS Annual Payments – duty to deduct income tax 124A 1 An annual payment made to a participant which meets the conditions in paragraphs (2) to (6) is not a qualifying annual payment for the purposes of Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments and royalties). 2 The payment must be charged to income tax under Chapter 7 of Part 5 of ITTOIA 2005 (annual payments not otherwise charged). 3 The payment must be made in respect of the participant’s interest in an offshore fund. 4 The payment and the amount of the payment must be directly or indirectly referable to, and must not be more than, any management fees paid to the manager of the offshore fund in respect of the participant’s interest in the fund. 5 Any management fee must not exceed an amount representing a reasonable commercial amount in all the circumstances. 6 At the time the payment is made, the person making the payment must have reasonable grounds for believing that the participant is not resident in the United Kingdom. Consequences of reasonable but incorrect belief 124B 1 This regulation applies if— a an annual payment is made to a participant without a sum representing income tax on the payment being deducted from it, b at the time the payment is made, the condition in regulation 124A(6) is met, c the payment would be a qualifying annual payment but for that condition being met, and d at the time the payment is made, the participant is resident in the United Kingdom. 2 Section 900 (deduction from commercial payments made by individuals) and section 901 (deduction from annual payments made by other persons) of ITA 2007 apply as if the payment were a qualifying annual payment. PART 4 CONSEQUENTIAL AMENDMENTS Amendment of the Inheritance Tax Act 1984 125 In section 174(1)(a) of the Inheritance Tax Act 1984 (income tax and unpaid inheritance tax) for “Chapter V of Part XVII of the Taxes Act 1988, arising on a disposal which is deemed to occur on the death by virtue of section 757(3) of that Act” substitute “ regulations made under section 41(1) of the Finance Act 2008, arising on a disposal which is deemed, under such regulations (see regulation 34 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)), to occur on the death ” . Amendment of ICTA 126 1 ICTA is amended as follows. 2 In section 396(2) (Case VI losses) for “section 761(1)(b)(ii)” substitute “ regulation 18(4) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 3 In section 505(3)(b)(iii) (charitable companies) for “section 761(6) below” substitute “ regulation 31 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 4 In section 587B(9) (gifts of shares, securities and real property to charities etc.), in the definition of “offshore fund”, for “Chapter 5 of Part 17” substitute “ section 40A of the Finance Act 2008 ” . 5 In section 834A (miscellaneous charges relating to the former Case VI of Schedule D)— a in Part 1 of the Table omit the entry relating to section 761(1)(b)(ii), and b in Part 3 of the Table insert at the end— Regulation 18(4) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) Offshore income gains 6 In section 842(3A) (meaning of investment trust) for “section 761(1)(a)” substitute “ regulation 18(1) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . Amendment of TCGA 1992 127 1 TCGA 1992 is amended as follows. 2 In section 108(1)(c) (identification of relevant securities for corporation tax)— a omit “, or have at any time been,”, and b for “material interests in a non-qualifying offshore fund, within the meaning of Chapter V of Part XVII of that Act” substitute “ interests in a non-reporting fund, within the meaning of regulations made under section 41(1) of the Finance Act 2008 (see Part 2 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)) ” . 3 In section 212 (annual deemed disposal of holdings of unit trusts, etc.)— a in subsection (1)(b) for “relevant interests in an offshore fund” substitute “ interests in an offshore fund within the meaning of section 40A of the Finance Act 2008 ” , and b omit subsections (5) to (7). 4 In paragraph 7 of Schedule 7AD (gains of insurance company from venture capital investment partnership: disposal of partnership asset giving rise to offshore income gain)— a in sub-paragraph (1) for “Chapter 5 of Part 17 of the Taxes Act (offshore funds)” substitute “ regulations made under section 41(1) of the Finance Act 2008 (see the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)) ” , and b in sub-paragraph (2) for “that Chapter” substitute “ such regulations ” . Amendment of ITTOIA 2005 128 1 ITTOIA 2005 is amended as follows. 2 In section 378A(7) , (offshore fund distributions), in the definition of “offshore fund”, for “Chapter 5 of Part 17 of ICTA (see sections 756A to 756C of that Act)” substitute “ section 40A of FA 2008 ” . 3 In section 632 (offshore income gains)— a in subsection (2) for “section 761(1) of ICTA (charge to income tax of offshore income gain)” substitute “ regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) (charge to tax) ” , and b in subsection (3) for “Chapter 5 of Part 17 of ICTA (charge to income tax of offshore income gains)” substitute “ Chapter 5 of Part 2 of those Regulations ” . 4 In section 830(4) (meaning of “relevant foreign income”) for paragraph (aa) substitute— aa regulation 19 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), . Amendment of ITA 2007 129 1 ITA 2007 is amended as follows. 2 In section 152(8) (losses from miscellaneous transactions) for “section 761(1)(b)(i) of ICTA” substitute “ regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 3 In section 482 (types of amount to be charged at special rates for trustees), in the description of “ Type 3 ”, for “section 761(1) of ICTA (offshore income gains)” substitute “ regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 4 In section 535 (exemption for offshore income gains)— a in subsection (3) for “Chapter 5 of Part 17 of ICTA (offshore funds) (see section 758 of, and Schedule 28 to, that Act)” substitute “ Chapter 5 of Part 2 of the Offshore (Tax) Funds Regulations 2009 (S.I. 2009/3001) ” , and b in subsection (4) for “section 761(6B) of ICTA” substitute “ regulation 31(3) to (5) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 5 In section 734(5) (reduction in amount charged: previous capital gains tax charge) for “section 762 of ICTA” substitute “ regulations 20 and 22 to 24 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” . 6 In section 1016(2) (table of provisions to which this section applies), in Part 3 of the Table— a omit the entry relating to section 761(1)(b)(i) of ICTA, and b at the end insert— Regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) Offshore income gains Amendment of FA 2008 130 1 Schedule 7 to FA 2008 (remittance basis) is amended as follows. 2 In paragraph 100(1)(a)— a for “section 762 of ICTA” substitute “ regulation 20 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” , b for “section 761 of ICTA” substitute “ such regulations (regulation 17 of those Regulations ” . 3 In paragraph 101(1)(b)— a for “section 761 of ICTA” substitute “ regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” , b for “section 762 of ICTA” substitute “ regulation 20 of those Regulations ” . 4 In paragraph 102(1)(d)— a for “section 762 of ICTA” substitute “ regulation 20 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) ” , b for “section 761 of ICTA” substitute “ such regulations (regulation 17 of those Regulations ” . Amendment of CTA 2009 131 1 CTA 2009 is amended as follows. 2 For the text of section 489 (meaning of “offshore fund” etc.) substitute— Sections 40A to 40G of FA 2008 (meaning of “offshore fund” and application to parts of umbrella funds and classes of interests in offshore funds) apply for the purposes of this Chapter as they apply for the purposes of sections 40A to 42A of that Act. 3 In section 490(1)(a)(iii) (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights) for “a material interest” substitute “ an interest ” . Tony Cunningham Dave Watts Two of the Lords Commissioners of Her Majesty's Treasury