§ Mr. Tim Smith
asked the Chancellor of the Exchequer what decisions he has reached on the representations made on the draft legislation on offshore and overseas fund.
§ Mr. Moore
We have given careful consideration to the representations that have been made since my statement of 22 February, and will be proposing a number of further amendments to the Bill. The main additional changes we intend to make are as follows: 437W
- (i) Clause 91 of the Finance Bill will be clarified to provide that the new rules do not apply to normal trading joint ventures or consortia;
- (ii) the new rules apply to disposals of "material interests" in offshore funds. One of the tests for determining whether there is material interest is whether the investor, when he acquires his investment, has a reasonable expectation of redeeming it within ten years. There have been a number of suggestions that ten years is too long a period, and we propose to reduce it to seven years;
- (iii) to obtain clearance as distributors, Schedule 19 of the Finance Bill requires funds inter alia to distribute 100 per cent. of their income. We intend to reduce this figure to 85 per cent., thus bringing it into line with the requirement to distribute 85 per cent. of United Kingdom equivalent profits;
- (iv) in some countries funds may be prevented from distributing some or all of their income in an account period because of a legal requirement to make good a loss. The conditions for distributor status will be modified to enable funds to meet any such obligation and still qualify as distributors;
- (v) foreign taxes imposed on a fund's capital would normally not be deductible from profits for the purposes of determining whether a fund distributes 85 per cent. of United Kingdom equivalent profits. An amendment will be introduced to ensure that such taxes can he deducted; and
- (vi) among the conditions for distributor status are some investment restrictions: clause 92 will be amended to make it clear that these restrictions do not apply to deposits with a bank in the normal course of its business.
In addition, we shall be introducing some more detailed technical amendments.
Some representations expressed uncertainty about the position of superannuation funds investing in offshore funds. The normal tax exemptions for superannuation funds' income will automatically apply to offshore income gains on the disposal of interests in offshore funds.