Hedge Fund Focus: partnership taxation and AIFMD remuneration deferral

As from April 2014, new legislation will take effect to change the rules for partnership taxation with a view to shutting down certain perceived abuses. These rules appear alongside special rules to ensure that the interaction of these changes with the Alternative Investment Fund Managers Directive (AIFMD) requirements for deferred remuneration does not bring about excessively punishing tax results.

Where the pay-out process rules under the AIFMD apply, all staff whose activities materially affect the risk profiles of the AIFM (or the AIFs it manages) will, broadly, have to have an appropriate amount of the variable portion of their remuneration deferred for an appropriate period of time and will receive at least half of their variable remuneration in the form of units or shares in the relevant AIFs. This applies to all forms of payment or benefits, including carried interest.

One of the new partnership tax changes is intended to prevent schemes involving a mixture of corporate and individual members of partnerships (including LLPs) whereby partnership profits can be diverted to (and taxed in) the corporate member at the preferable corporation tax rate, with the company’s allocation ultimately ending up with the individuals (as shareholders in the corporate partner or otherwise)…

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