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HMRC internal manual

Investment Funds Manual

Offshore Funds: Definition of an offshore fund: Meaning of ‘offshore fund’: corporate entities - s355(1)(a) TIOPA 2010

Mutual funds constituted as incorporated bodies resident outside the United Kingdom fall within the definition of an ‘offshore fund’ (s355(1))(a) TIOPA 2010).

A Limited Liability Partnership (“LLP”), as defined in the Limited Liability Partnerships Act 2000, is a body corporate but is specifically excluded from being within the definition of an offshore fund by section s355(3) TIOPA 2010.

This exclusion does not apply to LLPs formed under the law of any other territory. If such an LLP is a body corporate (and opaque for capital gains purposes) and a mutual fund then it will come within the definition of an offshore fund at s355(1)(a) TIOPA 2010.

Open-ended investment companies and other companies with similar characteristics would fall within the definition of an offshore fund.

It is expected that relatively few fixed share capital companies will fall within the new definition of an offshore fund. For example, an investment in a trading or investment company or group with fixed share capital and that was not limited life (even if local law provides for continuation votes) would not come within the definition. But under the characteristics-based approach, entities that have fixed share capital and that are structured in such a way that they share characteristics of open-ended share capital arrangements will be within the definition. So, fixed share capital companies that are predicated on the basis that investors will get a net asset value return or a return which is very close to net asset value may fall within the new definition of an offshore fund. That will also be the case where there are no redemption rights but where the arrangements have a limited life and a reasonable investor could expect to get a net asset value return on winding up (unless one of the exceptions in S357 TIOPA 2010 applies).

See IFM12284 onwards for further guidance on fixed share capital companies, and IFM12231 onwards for guidance regarding the meaning of the term ‘mutual fund’.