Authorised investment funds (AIFs): genuine diversity of ownership condition (GDO): advance clearance procedure
Under regulation 9B SI 2006/964 (as inserted by SI2009/2036), a manager or proposed manager of a fund can apply in writing for a clearance from HMRC that the fund meets the genuine diversity of ownership condition (GDO) (CTM48610). The manager or proposed manager is advised to use the GDO advance clearance application form that has been prepared for the advance clearance procedure. The form provides a ‘checklist’ which it is hoped will, when followed, reduce the chance of an application being refused.
If there is no doubt that a fund has or is intended to have a wide range of unconnected investors then it will clearly have no difficulty in meeting the GDO and advance clearance will not be necessary.
Once clearance is given by HMRC, the manager or proposed manager will be able to rely on this clearance unless there is any material change to the original fund documents, or they have acted contrary to relevant statements in fund documents. This is explained in further detail below.
To gain advance clearance, the manager (or proposed manager) must apply in writing to HMRC and send the following documents that apply, or are proposed to apply, at the beginning of the first accounting period for which clearance is sought:
- the instrument constituting the fund (that is the instrument of incorporation for an open-ended investment company or the trust deed for an authorised unit trust, as defined in regulation 6(7) SI2006/964), and
- the current prospectus or proposed prospectus (including any supplements to the prospectus).
In the case of a fund that has received clearance from HMRC in respect of its documentation meeting conditions A and B for the GDO condition, the fund will be able to rely on the clearance from the date on which the fund documents became effective in the form supplied to HMRC for clearance (even if the date is earlier than when clearance was given), or the date this regulation came into force, if that is later.
In the case of a Property AIF, which has an associated feeder fund structure, then in accordance with regulation 9B(3) SI2006/964, the manager must submit the fund documents of the feeder fund (that is the trust deed and the prospectus), in addition to the fund documents stated above.
HMRC will consider the application within 28 days of its receipt and will respond in writing either to:
- request further information, in which case the 28 day period to respond will re-start once all the relevant information has been received
- give clearance (which may be subject to stated conditions), or
- deny clearance.
The fund will not be able to rely on any clearance given, if:
- the documents submitted to the FSA are, in any relevant respect, not in accordance with the documents considered when clearance was given by HMRC or are subsequently amended in any relevant way (that is in such a way that it is possible to consider that the GDO may no longer be satisfied)
- the fund later acts in contravention of any relevant statement in the relevant documents provided (that is it is subsequently found that condition C is not met), or
- there is a material change made to the documents that may reasonably cause doubt as to whether the GDO may fail in relation to any accounting period. (Hence, any changes to the fund documents that has no impact on whether the GDO is met or not, will not constitute a material change in this case.)
The points stated above also refer to fund documents submitted by a Property AIF that has an associated feeder fund structure under regulation 9B(7) SI2006/964.
If there are any such changes then any clearance that was given by HMRC may no longer be relied upon. It is open to the manager to inform HMRC of the changes that have been made and request a further clearance. If the changes do lead to a fund failing to comply with the GDO then the consequences set out in the various regimes that rely on this condition will apply appropriately.
Applications for clearances should be submitted to:
Julie Norton (A to L) or Andy Nutbrown (M to Z)
HM Revenue & Customs Collective Investment Schemes Centre
5 Young Street
Benefits of gaining an advance clearance
In the case of a fund which clearly meets the GDO (for example where a professional adviser can confirm compliance with the condition) then there is no requirement to gain such a clearance nor any reason for doing so, unless a fund is planning to adopt the Tax Elected Fund (see CTM48911) or Property AIF regime (see CTM48811), as advance clearance will reduce the application or notification time process, respectively.
In general if the GDO is met for one purpose then it is also met for others. This also applies to clearances. In circumstances where advance clearance is desired and received for the GDO, then as long as there have been no changes as described above, it follows that the clearance can be relied upon for other regimes that may require the GDO to be met. For example, if a qualified investor scheme (see CTM48700 onwards) has obtained pre-clearance for the GDO it can also benefit from being treated as a diversely owned AIF if it carries out investment transactions (see CTM48280).
The only exception to the generality of the last two paragraphs above is the case where clearance has been obtained for a Property AIF by relying on a feeder fund (see CTM48160). The clearance can then only be relied upon by the fund while it is a Property AIF. However, while it is a Property AIF the clearance can be used for all purposes for which the GDO is relevant, (that is qualified investor schemes and diversely owned AIFs).