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HMRC internal manual

Investment Funds Manual

Co-ownership Authorised Contractual Schemes (CoACS): Income arising in offshore funds: income arising to investors in a CoACS

Requirements on operators of CoACS

The regulations in SI 2017/1209 require the operator of a CoACS to allocate certain amounts as the income of investors in the CoACS. These rules concern excess income of a reporting offshore fund which should be allocated to investors in the CoACS. Other income will already automatically arise to investors via the CoACS as a result of its transparency.

The operator of the CoACS must notify investors of the additional income by the information reporting date (see IFM8220).

{#}Investments in reporting offshore funds

Under regulation 11 of SI 2017/1209, where a CoACS has invested in a reporting offshore fund, the operator of the CoACS must allocate certain sums as investors’ income as follows.

  • Where the offshore reporting fund has made a report of excess income accruing to the CoACS, the operator must allocate that income to CoACS investors in proportion to their investments in the CoACS.
  • Where the offshore reporting fund has not made a report of income accruing to the CoACS, the operator must estimate the amount of income to be allocated to CoACS investors in proportion to their investments in the CoACS. If the CoACS subsequently receives a report from the reporting offshore fund, the operator should correct the estimated income in the period in which the report is received.

{#}Investments in non-reporting offshore funds

Under regulations 12 and 13 of SI 2017/1209, where a CoACS has invested in a non-reporting offshore fund, the operator of the CoACS must allocate certain sums as investors’ income as follows.

{#}Case 1: Where the operator of the CoACS has access to the accounts of the non-reporting offshore fund

This rule applies where the operator of a CoACS:

a)    Has access to the accounts of the non-reporting fund;

b)    Has sufficient information to calculate reportable income for the fund; and

c)    Can reasonably expect to have continuing access to that information throughout the period in which it will hold the investment in the fund.

In those circumstances, the operator should allocate an appropriate amount of income to investors in proportion to their investments. See IFM12000 for further guidance.

{#}Case 2: Where the operator of the CoACS does not have access to the accounts of the non-reporting offshore fund

In all other cases the operator of a CoACS should establish the movement in the fair value of the interest in the non-reporting fund and allocate appropriate amounts to investors as their income. The operator of a CoACS should take account of distributions received by the CoaCS when establishing the movement in the fair value. The amount of income allocated to investors should not be below zero.

“Fair value” means the value of the interest in the non-reporting fund if it was exchanged at arms’ length. The [## Requirements on operators of CoACS

The regulations in SI 2017/1209 require the operator of a CoACS to allocate certain amounts as the income of investors in the CoACS. These rules concern excess income of a reporting offshore fund which should be allocated to investors in the CoACS. Other income will already automatically arise to investors via the CoACS as a result of its transparency.

The operator of the CoACS must notify investors of the additional income by the information reporting date (see IFM8220).

{#}Investments in reporting offshore funds

Under regulation 11 of SI 2017/1209, where a CoACS has invested in a reporting offshore fund, the operator of the CoACS must allocate certain sums as investors’ income as follows.

  • Where the offshore reporting fund has made a report of excess income accruing to the CoACS, the operator must allocate that income to CoACS investors in proportion to their investments in the CoACS.
  • Where the offshore reporting fund has not made a report of income accruing to the CoACS, the operator must estimate the amount of income to be allocated to CoACS investors in proportion to their investments in the CoACS. If the CoACS subsequently receives a report from the reporting offshore fund, the operator should correct the estimated income in the period in which the report is received.

{#}Investments in non-reporting offshore funds

Under regulations 12 and 13 of SI 2017/1209, where a CoACS has invested in a non-reporting offshore fund, the operator of the CoACS must allocate certain sums as investors’ income as follows.

{#}Case 1: Where the operator of the CoACS has access to the accounts of the non-reporting offshore fund

This rule applies where the operator of a CoACS:

a)    Has access to the accounts of the non-reporting fund;

b)    Has sufficient information to calculate reportable income for the fund; and

c)    Can reasonably expect to have continuing access to that information throughout the period in which it will hold the investment in the fund.

In those circumstances, the operator should allocate an appropriate amount of income to investors in proportion to their investments. See IFM12000 for further guidance.

{#}Case 2: Where the operator of the CoACS does not have access to the accounts of the non-reporting offshore fund

In all other cases the operator of a CoACS should establish the movement in the fair value of the interest in the non-reporting fund and allocate appropriate amounts to investors as their income. The operator of a CoACS should take account of distributions received by the CoaCS when establishing the movement in the fair value. The amount of income allocated to investors should not be below zero.

“Fair value” means the value of the interest in the non-reporting fund if it was exchanged at arms’ length. The](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm12000) guidance provides more information on the treatment of distributions from offshore funds.