Tax (Reporting & relief)
Disclaimer: This is not tax advice. Please seek independent tax advice.
The tax-related information provided here and anywhere else on Odin’s website is for informational purposes only and should not be considered as tax advice. We recommend consulting a qualified tax advisor to understand how the topics discussed may apply to your specific situation.
Tax transparency and tax liabilities
Because Odin typically uses a United Kingdom Bare Trust structure to administer investments, there is complete tax transparency. This means that in practice, there are no geographic restrictions around where investors can invest from, or the companies they can invest into. All the structures we offer are completely tax transparent unless otherwise stated, and do not generally create tax liability in the jurisdiction where the entity is domiciled. However, as always, we cannot offer tax advice and recommend that you seek this independently.
However, typically your investors will be liable to pay tax wherever they were tax resident upon a liquidity event. Investors do not have tax liability in the UK.
For any non-UK government-sponsored tax relief scheme operated in the investor’s home country, if investors need to process a claim for tax relief based on these schemes, Odin’s advice is to seek advice from a qualified accountant in the country they’re claiming the relief in.
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EIS and SEIS
(You can find a guide to the end-to-end S/EIS process here)
The Enterprise Investment Scheme and Seed Enterprise Investment Scheme are UK government schemes which incentivise investment into UK companies via tax relief on both the initial investment and capital gains related to the investment. Claims can either be submitted for the current tax year, or backdated into a previous tax year (up to a certain limit). You can read more here about how the schemes work, what sorts of companies qualify and the level of relief available.
If you’ve specified a deal as being eligible for EIS, SEIS, or both, and the investee company has provided Odin with Advanced Assurance of this during the deal review process, investors should be able to claim relief via the relevant scheme once the company has completed the relevant paperwork and shared documents with us after the deal has closed.
If you are making use of Odin’s rolling close facility, please note that you won’t be able to access the information needed for S/EIS submissions until the deal has fully closed on Odin.
If your syndicate investors have questions, please refer them to the Investor Guide, where we elaborate on the process from their perspective. The following two points are the most common queries we see:
Where is my S/EIS certificate?
Odin is dependent on how soon the investee company can obtain the S/EIS UIR in order for the S/EIS3 certificates to be generated.
If Odin is handling the S/EIS3 certificates we will do so as quickly as possible. However, we have no control over how quickly the investee company obtains and forwards the relevant documents, so would advise the investor to defer to you for an update.
The tax year is approaching and I’m worried I can’t submit my claim in time
If it’s unlikely that the certificates will be generated and distributed to investors before the tax year end deadline, please advise your investors that their relief claim can typically be backdated into a previous tax year. If they have further concerns, we recommend that they seek independent tax advice.
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US investors - US federal income tax treatment
This section is only relevant to investors who are “United States persons” for US federal income tax purposes. It is not tax advice and is not a comprehensive discussion of all consequences that may apply to you. You must consult your own US tax adviser about your specific situation.
How Odin intends to treat the Bare Trust SPV for US tax purposes
Odin intends to treat a US person’s investment via an Odin UK Bare Trust SPV (an “SPV Investment”) as a constructive partnership for US federal income tax purposes. On this basis, you are treated as owning your proportionate share of the underlying assets held through the Odin SPV, and you are required to include in your annual US federal income tax return your share of any dividend income, capital gains, capital losses or other relevant tax items attributable to that investment.
Odin will annually provide information about your share of dividend income, capital gain, capital loss and other relevant tax items for US federal income tax purposes, typically in connection with a distribution event (such as an exit or dividend).
What information Odin provides and where to find it
When there is a distribution (exit, dividend or similar), Odin will send you a Distribution Notice by email to the address associated with your Odin account. This notice will set out, among other things, the amount of income associated with that distribution for your records.
If you have not received any distributions or Distribution Notices from Odin in respect of a particular investment, you most likely have not had any income relating to that investment so far. On the deal page for each investment on the Odin platform you will also find supporting information (for example, a Proof of Investment document), which you can share with your tax adviser.
Odin does not complete US tax forms on your behalf. We provide information; you and your advisers are responsible for preparing and filing your returns.
Possible US tax reporting obligations (Forms 8938 and 8865)
Depending on your circumstances, you may have additional US reporting requirements in relation to your Odin investments. In particular:
You may be required to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) if the value of your foreign financial assets, including your Odin SPV investments, exceeds the relevant dollar thresholds, unless your investment is held through an account maintained with a US financial institution.
In some circumstances, you may also be required to file IRS Form 8865 in relation to the constructive partnership treatment of your Odin SPV investment.
Substantial penalties can apply for failures to file required forms (such as Form 8938) on time, unless such failure is due to reasonable cause and not willful neglect. You must consult your US tax adviser about whether these or any other forms are required in your case.
Alternative characterisations and PFIC risk
It is possible that the IRS may disagree with Odin’s intended treatment of your SPV Investment as a constructive partnership and may seek to characterise your investment differently – for example, as an investment in a passive foreign investment company (PFIC). Any such alternative characterisation could affect the timing, amount and character of income, gain or loss that you must report and could create additional reporting obligations (for example, on Form 8621).
Odin does not take a view on how the IRS will ultimately characterise your investment and does not provide PFIC or other US tax advice. You must seek advice from an appropriately qualified US tax adviser on the proper treatment of your Odin investments and on any PFIC or other specialised reporting that may apply.
Ongoing disclaimer
The above discussion is intended solely for informational purposes for US persons investing via Odin’s UK Bare Trust SPV structure. It does not constitute tax advice. You should always consult your own US tax adviser regarding the US federal, state and local tax consequences of investing via Odin, and regarding any tax reporting or filing obligations that apply to you.
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Ireland: EIIS
We can offer some support on Ireland’s EIIS scheme, which works in a similar way to the UK S/EIS scheme.
Irish investors can claim EIIS on investment in Irish companies, even if these happen via a UK bare trust. We have received advice on this from BDO Ireland.
For further information, reach out to our support team on hello@joinodin.com.
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How tax works on carried interest
We advise investors to seek independent tax advice with respect to the local tax treatment of their investments on the Odin platform. The below is not tax advice and cannot be used as such - it is for informational purposes only.
We have received guidance indicating that UK investors are likely to be liable for income tax on carried interest. This is because Odin Bare Trust SPVs are not collective investment schemes, are not regulated Alternative Investment Fund Management (AIFM) structures, and as such do not benefit from the carve outs of Disguised Investment Management Fees (DIMF) rules mentioned below.
However, if structures are run as AIFMs, carried interest returns in the UK may benefit from different treatments. Effectively, sums allocated to an individual by way of carried interested can be treated, for tax purposes, as if the recipient had personally carried out the underlying transaction that gave rise to the income. The carried interest Income Tax rules provide, broadly, that any sum of carried interest arising from a fund is eligible for capital gains tax treatment only if the investment vehicle holds investments, on average, for at least 40 months. Partial CGT treatment is available where the average holding period is between 36-40 months. Where the average holding period is below three years, all sums of carried interest arising to the individual, however structured, are charged to tax and NICs as trading profits.