IFM36600 | Anti-avoidance clause: Anti-avoidance

Anti-Avoidance

ITA07/S809EZF

The disguised investment management fees (DIMF) rules contain an anti-avoidance clause. This is intended to be interpreted widely so that where the main or one of the main purposes of any steps taken or arrangements put in place is to secure that the DIMF rules do not apply to an individual (with or without other individuals), this will not be effective.

For example, if a payment which was an annual fee in substance was paid in a different form, this planning may be ineffective in avoiding the DIMF rules.

Example: Mislabelled categories of fee received

An arrangement is amended so that a sum which is in substance an annual fee is engineered to give the appearance of a performance-related payment arising from disposals.

The substance of the fee is that of an annual fee based on the funds under management not that of carried interest. As the legislation should correctly apply to the fee in substance the anti-avoidance provision may apply to the fee as it may not genuinely represent carried interest received.

Where steps are taken to ensure that arrangements fall within the definition of carried interest this will not in itself mean that the anti-avoidance clause will be invoked. For example, if the hurdle rate for a fund was increased from 5% to 6% to adhere with the condition for carried interest detailed at ITA07/S809EZD(4)(b), this would not necessarily be a reason for the anti-avoidance provision to be applied.