HM Revenue and Customs (HMRC) has published a draft Statement of Practice (SoP) setting out their interpretation of the Investment Manager Exemption (IME). The draft will have major implications for investment managers if it remains in its current form. We summarise the changes and their implications below.
A tax issue arises where an offshore hedge fund has a UK-based investment manager, since the investment manager could potentially be treated as a ‘permanent establishment’ of the hedge fund, with the consequence that the profits of the hedge fund will be subject to tax in the UK. The 1995 and 2003 Finance Acts provide an exemption, known as the IME, as long as the investment manager can be considered independent of the hedge fund. Under the legislation, a number of tests must be satisfied for the IME to apply. The draft SoP changes the HMRC’s interpretation of two of these tests.
