The costs were outlined in the £1.7bn closed-ended fund’s half-yearly report, which revealed net asset value returns of 9.3% for the period to 30 September 2018. Total shareholder return was 16.2% over the period compared with 6.1% in the FTSE 250.
3i Infrastructure confirmed the shift in tax and management took place on 15 October 2018 with provisional approval from HMRC.
Today’s half-yearly report revealed costs associated with the move of the management and tax residence of the company to the UK accounted for almost a third of the £1.6m total operating expenses for the period.
OECD crackdown on low-tax locations
3i Infrastructure said in its annual report for the period to 30 March 2018 that the change was in response to tax changes recommended by the OECD. In particular, it referred to several base erosion and profit shifting (Beps) recommendations centred around the prevention of treaty abuse.
The board of the investment trust said it was shifting the tax domicile and management to the UK to mitigate the risk of tax leakage.
Beps refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations, the OECD website says.
Jersey Funds Association said Beps was never intended to affect the funds industry, but that many fund managers had been caught out by its actions. It said Action 6, focused on the effectiveness of double taxation treaties, will be an area of consideration for many Jersey-domiciled funds but in many scenarios relocation to another jurisdiction is unlikely to result in a better outcome. The effect of Action 6 is dependent on specific investments and repatriation models, a factsheet on Beps from the organisation said.
3i Infrastructure’s move was set to cost £1m per annum due to ongoing costs, Winterflood Investment Trusts said in an analyst note at the time of the closed-ended fund’s annual report. This included value added tax (VAT) on investment management charges.
Infrastructure and property trusts shift domiciles
John Laing Infrastructure was in the process of shifting onshore when it was acquired by Dalmore Capital and Equitix Investment.
In the property sector, Guernsey-listed UK Commercial Property transitioned into a real estate investment trust in July 2018 due to legislation risk from Beps. It would have reduced the investment trust’s ability to deduct interest for tax purposes. Furthermore, legislation proposed in March 2017 would mean Guernsey companies that hold UK commercial property would have to pay capital gains tax.
Remaining Guernsey domiciled would have had a £9m negative impact on the investment trust, Winterflood said in an analyst note published in August.