Issue 78 – Regulatory and Tax Developments in March 2011

FUND NEWS March 2011 Investment Fund Regulatory and Tax developments in selected jurisdictions Issue 78 – Regulatory and Tax Developments in March 2011 Regulatory Content International IOSCO launches consultation on suspension of fund redemptions Page 1 Ireland Filing of First Set of Financial Statements Page 2 Subscription and Redemption Orders received by Fax or Electronically Page 2 UK Rules for imputed income from NROFs, and for terminations of AUTs and OEICs Page 2 Regulatory News International suspensions of redemptions. The principles cover the following main areas: Switzerland Amendment of the Collective Investment Schemes Act in response to the Directive on AIFMD Page 3 Tax Content IOSCO launches consultation on suspension of fund redemptions On 8 March 2011 the International 1 Management of liquidity risk. 2 Ex-ante disclosure to investors. 3 Criteria/Reasons for the suspension. 4 Decision to suspend. 5 During the suspension. Luxembourg Aberdeen case newsletter Page 4 The Netherlands CAA with Denmark re closed FGR Page 4 Organization of Securities Commissions (IOSCO) published a consultation report entitled “Principles on Suspensions of Redemptions in Collective Investment Schemes”. The report outlines principles against which both the industry and regulators can assess the quality of regulation and industry practices concerning 6 Examples of alternative measures to deal with illiquidity in certain jurisdictions. The consultation is open until 30 May 2011 and the report is available via the following web link: http://www.iosco.org/library/pubdocs/p df/IOSCOPD349.pdf UK Budget announcements on implementing UCITS IV Page 5 Definition of an Investment Trust Company to be revised Page 5 1 Ireland Filing of First Set of Financial Statements The Central Bank has confirmed that it will amend the UCITS and non-UCITS application forms to require a fund to submit its first set of financial statements within nine months of launch rather than of authorisation. Subscription and Redemption Orders received by Fax or Electronically The Central Bank has confirmed that for non-Irish domiciled funds, it will allow the manager/administrator to decide whether it needs to receive original application forms where subscription and redemption orders are received by fax or electronically. In such cases, the manager/administrator must ensure that there are appropriate controls in place to ensure compliance with anti-money laundering obligations and to mitigate the risk of fraud. These controls must be approved by the fund’s board or manager. UK Rules for imputed income from NROFs, and for terminations of AUTs and OEICs On 25 February the FSA published its handbook notice 107 which included amendments for authorised funds managed in accordance with the COLL sourcebook. These rules came into effect on 6 March 2010. They related to: • the income allocation and distribution of any imputed income recognised by the manager on an investment in a Non-Reporting Offshore Fund (an “NROF”); and • the closer alignment of the COLL rules for the termination of Authorised Unit Trusts (“AUTs”) to the existing fund termination rules for Open-Ended Investment Companies (“OEICs”), along with clarifications of these rules for both AUTs and OEICs. The updates to the Collective Investment Schemes sourcebook (“COLL”) in handbook notice 107: had the NROF been a Reporting Fund, and then include that amount in the distributions of the AIF. Inclusion in the distribution requires this amendment to COLL. The calculated notional reportable income of the NROF will be an adjustment from the capital account to the income account for the purpose of determining the income allocation and the distribution by the authorised fund. It will not be accounting revenue. (See Fund News issue 73 – November 2010) 2 Termination of Authorised Funds – enhancement and clarification of procedures: a) The FSA has introduced clarification in COLL section 7.3 regarding the process of the winding up or termination of an OEIC or sub-fund including notifying unitholders and an extension of the time to prepare and submit the final or termination account to the FSA from two to four months. 1 The first aligns COLL to changes in tax legislation for Authorised Investment Funds (“AIFs”), also effective on 6 March, which allow that a fund that invests in a Non-Reporting Offshore Fund (an “NROF”) may, if sufficient appropriate information is available, determine the amount that would have been reported b) More extensive amendments are made in section 7.4 with regard to the winding up of an AUT or termination of an AUT sub-fund. This now includes a guidance table as to the process and recognises that at the end of the process the final accounting period of the AUT 2 Switzerland ends and a final long report must be prepared, audited and submitted to the FSA within four months and made available to unitholders on request. Note that since an AUT is not governed by the corporate law based OEIC Regulations there is no equivalent for an AUT of the declaration of solvency that is required for an OEIC, nor is there an account of the termination as is required for an OEIC sub-fund. c) Unit issues or cancellations are not permitted during a termination, other than the final cancellation at the end of the termination or winding- up. Amendment of the Collective Investment Schemes Act in response to the Alternative Investment Funds Managers Directive On 11 March 2011 the Federal Council instructed the Federal Department of Finance to prepare a draft law to amend the Collective Investment Schemes Act. The purpose of this amendment is to adjust the legal provisions for the managers of collective capital investments assets in line with international developments and to ensure access to the European market. This amendment should also enhance investor protection and increase the quality of asset management in Switzerland. More information can be found via this web link: The FSA’s explanations of the changes it has made are on pages 20-21, and 38 to 40 of the 72 page handbook notice 107 available via this web link: http://www.news.admin.ch/message/ index.html?lang=en&msg-id=38070 http://www.fsa.gov.uk/pubs/handbook/ hb_notice107.pdf The amendments made to the text of the COLL sourcebook are detailed as shown changes in the 10 page amendments order approved by the Board of the FSA: http://fsahandbook.info/FSA/handboo k/LI/2011/2011_11.pdf 3 TAX News Luxembourg KPMG in Luxembourg is pleased to announce the release of a new tax newsletter focusing on withholding tax reclaims based on the Aberdeen case law. The aim is to provide all interested parties, including investment funds, promoters, custody banks, etc. with the latest updates on legislative changes, changes in administrative practice, ECJ case law and any other matters that are of importance for filing tax reclaims in the relevant countries. The second issue of the Aberdeen E-Alert - Issue 2011-02 is available via the following web link: http://www.kpmg.com/LU/en/IssuesAn dInsights/Articlespublications/Pages/A berdeenE-Alert-Issue2011-02.aspx The Netherlands CAA with Denmark re closed FGR The Netherlands have concluded a Competent Authority Agreement (CAA) with Denmark regarding the tax treatment of a Dutch closed FGR (`besloten fonds voor gemene rekening`). A closed FGR is treated as tax transparent for Dutch tax purposes. This implies that all income and gains derived by this FGR are attributed to the investors in proportion to their participations in the FGR. FGRs are frequently used for asset pooling by pension funds and other investors. In the CAA the Danish tax authorities confirm that a closed FGR will also be regarded as tax transparent for the application of the tax treaty concluded between the Netherlands and Denmark. Furthermore, the FGR (represented by its manager or depositary) may - on behalf of its investors - claim the benefits of all tax treaties concluded by Denmark with regard to income from Denmark. Thus, for any investor the lower withholding tax rates on dividend or interest income included in the tax treaty between Denmark and its country of residence can be claimed. Previously, the Netherlands have concluded similar CAAs with Canada and the United Kingdom. It is expected that CAAs with other countries (including the USA) will follow. The CAA is available via the following web link: http://www.rijksoverheid.nl/bestanden/ documenten-en-publicaties/circulaires/2011/02/08/ove reenkomst-met-denemarken-fiscale-kwalificatie-besloten-fonds-voor-gemene-rekening/overeenkomst-met-denemarken-over-fiscale-kwalificatie-besloten-fonds-voor-gemene-rekening.pdf 4 UK Budget announcements on implementing UCITS IV On the 23 March the Chancellor made important announcements to enable the UK funds industry to develop competitively after the revised UCITS Directive comes into force on 1 July. The Government will: 1 legislate in the 2011 Finance Bill so that UK fund managers can manage UCITS funds domiciled in other counties of the EU and have certainty that those non-UK resident UCITS funds will not be taxed in the UK; and 2 there will be a consultation in June 2011 to provide for a tax transparent fund structure in the UK with the goal of enabling the UK to be a domicile for a tax efficient asset pooling vehicle that could be a master fund under the UCITS Directive or a vehicle for pooling of life and pension funds. Domicile for tax At present some foreign funds may be assessed as being tax resident in the UK when centrally managed and controlled in the UK, for example because the manager managing the fund is UK resident. The proposed legislation will treat a UCITS fund that is established and regulated in another EEA state as not being resident in the UK, notwithstanding that the UCITS fund is managed by a UK manager using the capacity for cross border management provided for by UCITS IV. Further information is available in section 1.16 in this web link: http://www.hmrc.gov.uk/budget2011/o verview.pdf Tax Transparent Funds In light of significant restructuring opportunities resulting from both UCITS IV and Solvency II, the Government has committed to introduce a tax transparent fund vehicle in 2012, consultation to achieve this will commence in June 2011. KPMG is on the Treasury’s working group facilitating this important development for the UK as a centre for UCITS funds and pooling vehicles that can deliver economies of scale for both investors and the industry, and compete with other domiciles where tax transparent vehicles already exist. In addition, the Government has announced that they will introduce amendments to the Genuine Diversity of Ownership (“GDO”) condition to allow for the provision of master-feeder fund structures without breach of the GDO condition. Further information is available in section 3.29 in this web link: http://www.hmrc.gov.uk/budget2011/o verview.pdf Definition of an Investment Trust Company to be revised The draft Finance Bill published on 9 December 2010 contained proposed legislation covering Investment Trust Companies (“ITCs”), including the provision of a new definition of an ITC using a “characteristics” based approach, this has been made broader and now requires that the business of the ITC must consist of investing in shares, land or other assets with the aim of spreading investment risk. This revised definition is helpful for private equity ITCs because it does not require that the sole object of an ITC must be the investment and management of pooled funds, a concern raised in earlier consultation that has been addressed. The Government has announced that these clauses, along with minor revisions that do not affect the substance of the draft legislation, will be published as part of Finance Bill 2011. There will be draft regulations towards the end of April 2011 which will set out the detailed operational rules. Further information is available in section 2.15 in this web link: http://www.hmrc.gov.uk/budget2011/o verview.pdf 5 ... - tailieumienphi.vn