COVID-19 issues affecting asset and fund managers – tax considerations

Hi, I’m Mike Alliston and I’m a partner in the London Tax Team.

This video is part of the COVID video diary series.  Following on from Imogen and Iona's instalments for asset and fund managers, they've asked me to briefly talk about some of the tax considerations arising out of the continued lockdown.

Firstly, fund structures are often very sensitive to where activities are carried out, in particular thinking about the tax residence of the tax vehicles.  If a decision maker of a vehicle is trapped in a jurisdiction as a result of the current travel restrictions, then it may give rise to a risk around shift in the tax residence, or indeed, the creation of a taxable presence in that jurisdiction.  So, while video conferencing is a great solution to distance working, it may still give rise to a potential tax risk.

In the UK, HMRC has published guidance saying that they are very sympathetic to the current circumstances but they have not given any formal relaxation to the residence rules.  That's unlike some jurisdictions, such as Australia and Luxembourg where a formal relaxation has been put in place.

Funds then should continue to monitor their Board conduct, and to the extent possible, activities and decisions made in the correct jurisdiction.

Turning to reporting obligations, so thinking about country by country reporting, and common reporting standards.  HMRC have issued guidance saying that if there is a failure to meet the reporting deadlines, if that is as a result of COVID, then they will consider that a reasonable excuse and not impose penalties.

Turning to GAAP 6 and its impending arrival, the EC has proposed a formal three month delay in reporting, so for reporting that would be due end of July, that would now be due end of October.

I think the message for businesses is though they should, to the extent possible, continue to exercise their activities and their tax compliance in as normal manner as possible, rather than relying on the sympathy of tax administrations.

The final point I wanted to discuss in my three to four minutes allotted is the Budget, and while much of the Budget has been superceded by the economic measures needed to tackle COVID, there are a couple of interesting announcements with respect to the funds industry.

So, firstly there was a consultation with regards to asset holding companies and those potentially being relaxed from a tax perspective to encourage asset holding companies to be in the UK as opposed to offshore.  That consultation was due to end now, so mid May, but it's now looking like end of August is when the consultation will end.  So there is still time if you are a fund and have asset holding companies offshore to get involved in that consultation.

The Government also announced that it is considering changing the rules around VAT on fund management fees and that there would just be a wider look at the fund taxation regime.