HEDGE funds with an offshore element are now ‘at the top of the list’ for investigation by the UK tax authorities, say specialists.

Tony Connelly, director of the UK tax investigations team at PricewaterhouseCoopers and a former employee of the Inland Revenue, said that hedge funds with international connections had always been of interest for tax purposes but that now Her Majesty’s Revenue Commission (HMRC) was specifically looking at the hedge fund industry.

Speaking at a recent PwC briefing, Mr Connelly outlined the main questions which the Revenue would want offshore hedge fund firms to answer.

In particular, they would want to know whether the firm had a permanent branch in the UK, where the key personnel were located in terms of residence, and whether there were any transfer pricing arrangements – employees paid for work carried out in the UK.

‘They are using the internet and will look at hedge fund websites,’ said Mr Connelly.