1.    ATAD 3 and investment funds

The Anti-Tax Avoidance Directive III, also known as ATAD 3 or the Unshell Directive, is the EU directive introduced to prevent the use of shell entities for improper tax purposes in cross-border structures. ATAD 3 focuses on the minimum substance required by EU companies, and in the context of investment fund structures, whether holding companies would be impacted should be reviewed. If ATAD 3 is adopted, then Member States will need to have implement it by 30th June 2023, in preparation for application from 1st January 2024. 

Many fund managers are concerned about the implications of the upcoming ATAD 3 changes in the context of investment funds. In this article here, we summarise the most frequently asked questions and the answers from our tax experts. 

2.    Continuation funds

We have received a considerable number of queries regarding the feasibility of establishing a continuation fund strategy in the last 12 months. At a time of challenging market conditions for both deals and investors, continuation funds allow fund managers to capture additional value from their best-performing assets by extending the investment horizon, whilst also providing liquidity options for existing investors who may need to realise some cash. 

Please see our article here which briefly looks at some of the key tax and non-tax issues which fund managers may need to consider as part of their appraisal and implementation of a continuation fund strategy.

3.    Labour Party’s announcements regarding carried interest taxation

Members of the Labour Party have made announcements to raise c. £600m by taxing carried interest earned by private equity fund managers as income subject to tax of up to 45%, rather than as capital gains subject to tax at 28%, if they win the next General Election (expected to take place by 28 January 2025). Such plans we believe, could have a wide-ranging impact for many asset managers in the private equity industry, and potentially other industries which use similar carried interest arrangements too i.e. venture capital, credit and infrastructure. The proposals currently form a hot topic amongst us and our clients. We will shortly be releasing an article summarising key issues related to the Labour Party’s announcements regarding carried interest taxation.