Reporting funds: computation of reportable income: Transparent Funds
The regulations require a transparent reporting offshore fund to provide a computation of its reportable income for each period of account and this reportable income for the period comprises each of the separate sums of income which falls within regulation 11(a) or (b) (meaning of a transparent fund).
The transparent reporting fund is then required to make different adjustments to those sums depending on whether it holds an interest in:
- Another reporting fund (Regulation 89C)
- A non reporting fund where the transparent fund has sufficient information to compute the reported income of the non reporting fund (Regulation 89D)
- A non reporting fund where the transparent fund does not hold sufficient information to compute the reported income of the non reporting fund (Regulation 89E).
Regulation 89C - Adjustments in relation to income from other reporting funds
If a transparent reporting fund (TRF) holds an interest in another reporting fund (RF) the reportable income of TRF shall include any excess of the income reported by the RF over the amount actually distributed by the RF in respect of that interest. Any excess is treated as reportable income of the TRF for the period of account in which the fund distribution date of the RF falls.
If the RF does not make a report available under Regulation 90(5) (see OFM24200) the TRF is obliged to include its best estimate of the reported income of the RF. This is computed by adjusting the computation of reportable income for the period of account in which the latest possible fund distribution date falls. The TRF must then make any necessary corrections to its best estimate of reportable income for the first later period in which it has sufficient information to make those corrections.
Regulation 89D - Adjustments where transparent reporting fund has sufficient information to compute reportable income of non-reporting fund
Where the conditions below are fulfilled, the transparent reporting fund must include its computation of the reported income of the non reporting fund (NRF) as if the NRF was a reporting fund.
The conditions are:
- The transparent reporting fund has access to the accounts of the non reporting fund,
- The transparent reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund, and
- The transparent fund can reasonably expect to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund
The computation method at Regulation 89C applies.
Regulation 89E - Adjustments where transparent reporting fund does not have sufficient information to compute reportable income of non-reporting fund
Where a transparent reporting fund holds an interest in a non-reporting fund but it does not meet the conditions at 89D, the reportable income of the transparent reporting fund must include an amount equal to the increase (if any) in the fair value of its interest in the non-reporting fund in that period. There is no adjustment in the case of a decrease but decreases may be carried forward as explained below.
Where decreases have occurred in the fair value of the non reporting fund in earlier periods, the transparent fund may in some circumstances set the earlier decrease against increases in the fair value of the non-reporting fund in the current period. This unused decrease can only be taken into account:
- Where the unused amount of the decrease in fair value has not previously had the effect of reducing the amount of a fair value increase, and
- May not reduce the current period fair value increase to less than zero.