An offshore fund’s activities may give rise to a UK tax liability through the activities of its UK representatives being its investment manager. The Investment Manager Exemption (IME) provides a tax exemption so that such charges do not arise, subject to the manager meeting certain requirements.
Meeting the IME requirements are therefore essential for an investment manager seeking to protect the tax integrity of the fund. Some of the key tests are:
Whether there is a trade – the liability arises in relation to trading funds and not investment funds
Independent capacity and customary remuneration – the manager must operate on an arm’s length basis from the fund and receive customary remuneration
20% test – the manager and persons connected with them must not be entitled to more than 20% of the income in the fund. This test can be difficult for managers to meet in certain circumstances
Duff & Phelps has significant experience in structuring new managers to ensure that IME tests are met. We also assess the structure of already established arrangements, assess compliance and make recommendations for adding robustness to the arrangements. We will liaise with investors, auditors and regulators on our clients’ behalf in discussing compliance with the IME.
Through our services you will have better industry insight into the application of the exemption, be assured that the tax integrity of your fund will be protected, and you will know practical solutions to potential problem areas.