The question before the court was the liability of the trustee to income tax on the interest. The relevant tax legislation made no provision for the deduction of tax from payments of income out of trust estates. The trustee argued, relying on Baker, that the liability to tax of income received by trustees depended upon the position as regards liability of the beneficiary; that in this case the interest received was treated as capital as a matter of ordinary principles of accounting between trustees and income- beneficiaries; that the beneficiaries would never receive the interest as income and therefore no liability to tax was possible. It was held by the Scottish Court of Session that on construction of the statute the interest was income and the trustees were the persons receiving or entitled to the income. Read the rest of this entry »
On the question of the rights of unitholders in the underlying assets of the trust fund, there are two strands of authorities that may be relevant to our understanding. In the first place, as the vast body of trust law is derived from trusts used in family dispositions, the line of cases after Baker v. Archer-Shee will be relevant. Indeed, Baker has been applied in commercial trusts and none of the decisions finds it necessary to distinguish the commercial from the family situations. Deed of settlement companies can be regarded as the origin of modern unit trusts, both in form and substance. The approaches of cases on such companies will illuminate our analysis. Read the rest of this entry »
The pricing and bookkeeping agent is responsible for maintaining the fund’s accounting records, pricing the fund’s portfolio each day, calculating periodic distributions, determining the fund’s cash availability, preparing financial statements and filing the fund’s tax returns. A fund’s accounting records are very similar to those of a small corporation, consisting of revenue, expenses, assets, liabilities and shareholder’s equity. The pricing and bookkeeping agent is responsible for maintaining these records each day. The accounting records are the basis for calculating the fund’s NAV, the price at which shareholders buy into and sell out of the fund, as well as for determining the distributions the fund makes to its shareholders. Read the rest of this entry »
This article has been compiled with the help of Arthur Andersen, particularly Victor Levy of Arthur Andersen’s Financial Services tax practice in London. It covers the taxation of futures funds and derivatives in a broader sense for the leading European markets. The author would like to thank him and the European offices of Arthur Andersen for their help.
In Belgium, the law of December 1990 regulated in an extensive way the status of investment funds (initially covered by the law of 1957) and created two new types of investment companies: the SICAV and the SICAF. The SICAV is the société d’investissement a capital variable, while the SICAF is the société d’investissement a capital fixe. Read the rest of this entry »
The policy of most jurisdictions is to treat the mutual fund as a company subject to corporate or income tax only on its ordinary business (i.e. net income arising from holding investments), and exempt it from taxation on its gains from buying and selling investments. In the US, provided the gains and net income are distributed, the fund does not pay federal income tax on either. Taxes are the responsibility of and paid by the shareholders under a ‘pass-through’ arrangement, whether they choose to receive cash or reinvest their entitlement. Read the rest of this entry »
Buying and selling
Although some funds are exchange-traded, the shares or units of most mutual funds are bought and sold by making an application to the manager. This can be in writing, by telephone or via the Internet, directly by the investor or by the investor’s adviser or agent. Many managers have pre-printed application and redemption forms and their advertisements and other promotional mailing material often include an application form. Once accepted by the manager, applications constitute a binding contract, and the manager issues a contract note stating the details of the transaction.
For purchases, payment can be included with the application. Some managers may insist on this for the initial investment of a first-time investor. Alternatively, the contract note will specify when payment is required. For large investments, the manager may be required by law to obtain confirmation of the investor’s identification and of the source or destination of money involved in the transaction: if there is any suspicion that the money is being laundered, or used to support terrorist activity, the suspicion must be reported to the authorities. Read the rest of this entry »
Institutions obtain administrative and, sometimes, taxation benefits by using mutual funds to manage their own assets. Such funds are invariably not available to the general public. Funds that are authorised to be promoted to the general public (frequently referred to as ‘retail funds‘), usually extol the benefits to the private individual, namely:
1. Small investment required
Although both minimum holdings and minimum initial amounts are usually required, individuals can invest comparatively small sums of money in mutual funds, particularly through plans that accept regular subscriptions. So-called ’small investors‘ can thereby obtain the benefits of worldwide economic activity (hopefully growth) rather than allowing these to be enjoyed by the banks (and their shareholders) and others with whom they deposit their funds in return for an interest income. Read the rest of this entry »
