Financial Times – Hedge fund managers could have to pay hundreds of millions of pounds in tax after a crackdown on firms that channelled excessive profits to offshore tax jurisdictions.
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Investigators are pursuing fund managers who cannot justify the way they have split their income and expenses between UK and offshore companies. The challenges could have serious knock-on effects on some hedge funds since it could jeopardise their tax-free status in the UK.
John Neighbour of KPMG, the professional services firm, said Revenue & Customs was stepping up its scrutiny in a move likely to lead to litigation in some cases. “There is potentially a lot of tax at stake. This is a big area of tax risk.”
The Revenue is concerned that a large proportion of management fees is sometimes allocated to an offshore company that does little to justify it. Even if an offshore operation provides marketingor other services, fund managers might struggle to supply the detailed paperwork required to justify the breakdown of fees, which are supposed to reflect “arm’s length” prices.
Most hedge funds are based offshore, such as the Cayman Islands, while the managers handling day-to-day operations are typically in onshore centres such as New York and London.
