Every budget in recent memory has included the worthy desire to increase the attractiveness of the UK as a jurisdiction in which to locate fund vehicles. I'll therefore admit it was with a degree of weariness that I followed up on the latest announcement buried in the Budget documents.
But wait. That reference to VAT (off limits last time round) sounds promising; and on further reading the issues in the consultation documents are expertly identified.
The timing is also good; European investors are increasingly questioning offshore fund vehicles, most recently prompted by the EU blacklisting the Cayman Islands. Even the all-conquering Luxembourg SCSP is running into some challenges with ATAD 2's reverse hybrid rules. The recent tribunal case of Melford Capital, perhaps points the way to the future on VAT - no VAT on the management fee, but full recovery for the manager. Maybe even Brexit creates some new flexibility.
The question the Government has chosen to explore is why, given the UK's status as a leading jurisdiction for fund managers, are the funds managed by those managers, and the companies set up by those funds to hold investments, largely established in non-UK jurisdictions? How do other jurisdictions, particularly Ireland and Luxembourg, minimise the barriers to entry, while maintaining a functioning tax system and complying with international obligations?
As the consultation acknowledges, there are many elements of the UK's tax and legal system that are already well suited to these roles. The changes required are comparatively modest.
But there is a tension in the consultation document. In some parts, the author dares to dream: extension of the securitisation company regime, another step on the road to an unqualified participation exemption. But the same voice is still present that held back the previous consultations, which has forced the adviser to say yes but, rather than yes, that has led to the multiple footnotes in the UK column of the comparative holding company jurisdiction table, that wanted to embellish the hybrid rules by pulling in tax havens. Can that voice be overcome this time?
The timing of the review and the questions posed by the consultation review offer real cause for hope for better this time. Readers are encouraged to engage with the consultation!
The government is aware that... barriers, which do not exist in some other jurisdictions, are leading these entities to be located outside of the UK. That is despite the wider strengths of the UK as a financial services hub and despite significant demand from funds to be able to locate these entities alongside UK fund management activities for reasons of commercial efficiency.