The Inland Revenue has received from Equitable Unit Trust Managers (EUTM) pounds 985,000 in back tax, interest and fines over the non-payment. EUTM was also fined pounds 80,000 for breaking IMRO's rules on the same count and has paid pounds 23,000 for its disciplinary hearing.
EUTM failed to value properly two unit trusts, given certain tax liabilities they acquired through offshore collective investment schemes in more high- risk sectors like emerging markets, and failed to pay tax on the schemes from June 1988 to June 1998. The trusts were the International Growth Trust and the Far Eastern Trust, totalling pounds 600m worth of funds.
Usually, capital profit on investments held by units trusts are exempt from tax and capital gains, but this does not apply to some offshore collective investment schemes. This means that the unit trust is able to buy a stake in an investment vehicle which invests in higher risk sectors like emerging markets. Profits and disposals are treated as income and are subject to corporation tax.
It was only after 10 years of not paying the tax that EUTM woke up to the fact last year that something was wrong, when it informed IMRO immediately. IMRO also fined EUTM for its failure to have procedures which would have identified the potential tax liability in the first place.
EUTM said: "It has all been most unfortunate but we have had a complete review of our auditing and tax systems and we are paying the fines rather than the unit trusts themselves. Thus investors have benefited to a very small extent by the trusts not having to pay tax they should have."