White Paper: Investment Funds – Why Substance Is Key

In the current climate of regulatory reforms, and the political impetus behind improving tax transparency, the need to prove that an offshore fund manager has the necessary 'substance' to its business dealings and functionality has never been more acute. This paper will examine the increasing importance of substance in the fund management sector, particularly in the context of the Alternative Investment Fund Managers Directive (AIFMD) and Base Erosion and Profit Shifting (BEPS) initiative.

Defining substance

This is harder than it sounds. There are no real guidelines on what constitutes substance from country to country, with a number of local regulators putting the issue under scrutiny without yet committing to a definition. However, Anglo Saxon domiciles offer some of the better direction, both in terms of the way substance is defined and how that definition is enforced.