The Authorised Investment Funds (Tax) (Amendment) Regulations 2009
 

The Authorised Investment Funds (Tax) (Amendment) Regulations 2009

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The Authorised Investment Funds (Tax) (Amendment) Regulations 2009 List of acts
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Crown Copyright Acknowledged
CONTENTS

Statutory Instruments

2009 No. 2036

Income Tax

Corporation Tax

Capital Gains Tax

The Authorised Investment Funds (Tax) (Amendment) Regulations 2009

Made: 21st July 2009

Laid before the House of Commons: 23rd July 2009

Coming into force: 1st September 2009

1.Citation and commencement

2.Amendment of the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964)

3.Amendment of regulation 2

4.Amendment of regulation 6

5.Amendment of regulation 8

6.Insertion of Part 1A

7.Amendment of regulation 13

8.Amendment of regulation 14B

9.Omission of regulations 14C and 14D

10.Insertion of Part 2B

11.Amendment of regulation 17

12.Amendment of regulation 48

13.Amendment of regulation 51

14.Insertion of regulations 52B to 52E

15.Amendment of regulation 69D

16.Omission of regulation 69DA

17.Omission of regulation 69J

18.Amendment of regulation 69O

19.Amendment of regulation 69P

20.Amendment of regulation 69Q

21.Omission of regulation 69U

22.Amendment of regulation 69Z8

23.Substitution of regulation 69Z34

24.Insertion of Part 4B

25.Amendment of regulation 70

26.Amendment of headings

27.Amendment of regulation 71

28.Amendment of regulation 72

29.Amendment of regulation 74

30.Amendment of regulation 95

31.Amendment of regulation 96

32.Amendment of the Schedule

33.Amendment of the Real Estate Investment Trusts (Assessment and Recovery of Tax) Regulations 2006

 

The Treasury make the following Regulations in exercise of the powers conferred by sections 17(3) and 18 of the Finance (No. 2) Act 2005(1) and sections 973 and 974 of the Income Tax Act 2007(2).

Citation and commencement

1.  These Regulations may be cited as the Authorised Investment Funds (Tax) (Amendment) Regulations 2009 and shall come into force on 1st September 2009.

Amendment of the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964)

2.  The Authorised Investment Funds (Tax) Regulations 2006(3) are amended as follows.

Amendment of regulation 2

3.  In regulation 2 (structure of these Regulations)(4)—

(a) after “interpretation;” insert—

“Part 1A deals with the genuine diversity of ownership condition;”,

(b) after “Part 2A deals with qualified investor schemes” insert—

“Part 2B deals with diversely owned AIFs;”,

(c) after “Part 4A deals with Property AIFs;” insert—

“Part 4B deals with Tax Elected Funds;”.

Amendment of regulation 6

4.  In regulation 6 (further definitions generally relevant for authorised investment funds) after paragraph (6) insert—

“(7) In these Regulations “instrument constituting the fund” means—

(a) in relation to an open-ended investment company, the instrument of incorporation, and

(b) in relation to an authorised unit trust scheme, the trust deed.

(8) In these Regulations “genuine diversity of ownership condition” has the meaning given by regulation 9A.”.

Amendment of regulation 8

5.  In regulation 8 (general interpretation) insert at the appropriate place—

““connected person” has the meaning given in—

(a)sections 993 and 994 of ITA 2007 (connected persons)(5) in the case of a person chargeable to income tax, and

(b)section 839 of ICTA (connected persons)(6) in the case of a person chargeable to corporation tax;”.

Insertion of Part 1A

6.  After regulation 9 (abbreviations and general index) insert the following Part—

“PART 1A

THE GENUINE DIVERSITY OF OWNERSHIP CONDITION

The genuine diversity of ownership condition

9A—(1) For the purposes of these Regulations, the genuine diversity of ownership condition is as follows.

(2) The genuine diversity of ownership condition is that an authorised investment fund must—

(a) meet conditions A to C throughout the accounting period; or

(b) comply with paragraph (8).

(3) Condition A is that the fund documents—

(a) contain a statement that units in the fund will be widely available,

(b) specify the intended categories of investor, and

(c) specify that the manager of the fund must market and make available the units in the fund in accordance with paragraph 9A(6)(a).

(4) Condition B is that neither—

(a) the specification of the intended categories of investor, nor

(b) any other terms or conditions governing participation in the fund, whether or not specified in the fund documents,

have a limiting or deterring effect.

(5) In paragraph (4) a limiting or deterring effect means an effect which—

(a) limits investors to a limited number of specific persons or specific groups of connected persons, or

(b) deters a reasonable investor within the intended categories of investor from investing in the fund.

(6) Condition C is that—

(a) units in the fund must be marketed and made available—

(i) sufficiently widely to reach the intended categories of investors, and

(ii) in a manner appropriate to attract those categories of investors; and

(b) a person who is in an intended category of investor can, upon request to the manager of the fund, obtain information about that fund and acquire units in it.

Condition C is subject to paragraph (7).

(7) Condition C shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—

(a) the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and

(b) a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity.

(8) An authorised investment fund which is a Property AIF also meets the genuine diversity of ownership condition if—

(a) an investor in the fund is a unit trust scheme (a “feeder fund”);

(b) conditions A to C are met in relation to the authorised investment fund after taking into account—

(i) the fund documents relating to the feeder fund, and

(ii) the intended investors in the feeder fund; and

(c) the authorised investment fund and the feeder fund have the same manager (or proposed manager).

(9) In this Part “fund documents” means—

(a) the instrument constituting the fund, and

(b) the fund’s prospectus in issue for the time being (including any supplements to the prospectus).

Clearance in relation to the genuine diversity of ownership condition

9B.—(1)  An application for clearance that an authorised investment fund meets the genuine diversity of ownership condition (see regulation 9A) may be made in writing to the Commissioners by the manager (or proposed manager) of an authorised investment fund.

(2) An application for clearance must be accompanied by the fund documents in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

(3) If regulation 9A(2)(b) and (8) applies, an application for clearance by the authorised investment fund must be accompanied by—

(a) the documents specified in paragraph (2), and

(b) the fund documents of the feeder fund in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

(4) The Commissioners may require the manager (or proposed manager) to provide further particulars if they believe that full particulars of the fund have not been provided.

(5) The Commissioners must notify the applicant within 28 days of the receipt of the particulars (or, if paragraph (4) applies, of all further particulars required) that they—

(a) give clearance that the fund meets the genuine diversity of ownership condition,

(b) give that clearance subject to conditions, or

(c) refuse to give that clearance.

(6) An authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if—

(a) at the beginning of the first accounting period of the fund to which the clearance relates (and at the beginning of each subsequent accounting period), a relevant statement in the fund documents in issue for the time being is not in accordance with a relevant statement in the documents considered by the Commissioners before giving clearance,

(b) the fund acts or is operated in contravention of a relevant statement in the fund documents,

(c) the fund documents are materially amended, or

(d) the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulation 9A(6)).

(7) If regulation 9A(2)(b) and (8) applies an authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if any of sub-paragraphs (a) to (d) of paragraph (6) apply in relation to either the authorised investment fund or the feeder fund.

(8) Paragraph (6)(c) does not apply if the manager of the fund has obtained a clearance given under this regulation which applies to the amendment.

(9) For the purposes of paragraph (6)(c), a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the genuine diversity of ownership condition in relation to any accounting period.”.

Amendment of regulation 13

7.  In regulation 13 (treatment of interest distributions for purposes of loan relationships) after paragraph (3) insert—

“(4) In this regulation an “interest distribution” includes a TEF distribution (non-dividend) (see regulation 69Z61(3)).”.

Amendment of regulation 14B

8.  Regulation 14B (tax treatment of qualified investor schemes)(7) is amended as follows.

(1) In paragraph (1) for “14C” substitute “9A”.

(2) In paragraph (2) after sub-paragraph (a) insert—

“(aa) the provisions of Part 4 of these Regulations,”.

(3) Omit paragraph (5).

Omission of regulations 14C and 14D

9.  Omit regulations 14C (the genuine diversity of ownership condition) and 14D (clearance in relation to the genuine diversity of ownership condition)(8).

Insertion of Part 2B

10.  After regulation 14B (tax treatment of qualified investor schemes) insert the following Part—

“PART 2B

DIVERSELY OWNED AIFS

Tax treatment of diversely owned AIFs

14E.—(1)  This regulation applies to an authorised investment fund in respect of an accounting period if—

(a) the fund carries out an investment transaction in that period, and

(b) the fund meets the genuine diversity of ownership condition in relation to that period.

(2) In these Regulations an authorised investment fund to which this regulation applies is referred to as a “diversely owned AIF”.

(3) If the profits or losses, as the case may be, arising from an investment transaction are capital profits, gains or losses, that investment transaction shall be treated as a non-trading transaction of the diversely owned AIF for the purposes of corporation tax.

(4) Chapter 2 of Part 3 of CTA 2009 (income taxed as trade profits)(9) does not apply to capital profits and losses arising from such an investment transaction.

(5) For the purposes of these Regulations “investment transaction” means a transaction specified in regulation 14F.

(6) For the purposes of paragraphs (3) and (4) capital profits, gains or losses arising from an investment transaction in an accounting period are such profits, gains or losses as fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for an accounting period.

(7) For the purposes of paragraph (6), the “statement of total return for an accounting period” has the same meaning as in regulation 12(2).

Meaning of “investment transaction”

14F.—(1)  For the purposes of these Regulations an “investment transaction” means—

(a) any transaction in stocks and shares;

(b) any transaction in a relevant contract (and see regulations 14G to 14K);

(c) any transaction which results in a diversely owned AIF becoming a party to a loan relationship or a related transaction in respect of a loan relationship (and see regulation 14L);

(d) any transaction in units in a collective investment scheme (and see regulation 14M);

(e) any transaction in securities (and see paragraph (2));

(f) any transaction consisting in the buying or selling of any foreign currency;

(g) any transaction in a carbon emission trading product (and see regulation 14N).

(2) In paragraph (1)(e) “securities” means securities of any description not falling within sub-paragraphs (a) to (d) of paragraph (1).

Meaning of relevant contracts: general

14G.—(1)  For the purposes of regulation 14F a “relevant contract” is—

(a) an option,

(b) a future, or

(c) a contract for differences.

(2) For the purposes of this regulation an option, a future or a contract for differences which relates to land will only be a relevant contract if the option, the future or the contract for differences uses an index referred to in regulation 14K(1)(b) and the index is—

(a) publicly accessible,

(b) comprised of a significant number of properties, and

(c) not maintained by—

(i) the diversely owned AIF,

(ii) the manager of the diversely owned AIF, or

(iii) a person who is a connected person in relation to the diversely owned AIF or the manager of the diversely owned AIF.

Meaning of relevant contract: options

14H.—(1)  For the purposes of regulation 14G an “option” includes an instrument which entitles the holder to subscribe for shares in a company or assets representing a loan relationship of a company, and for these purposes it is immaterial whether the shares or assets to which the instrument relates exist or are identifiable.

(2) For the purposes of paragraph (1) the reference to a loan relationship of a company is to be construed in accordance with regulation 14L but with references in that regulation to “diversely owned AIF” treated as references to “company”.

Meaning of relevant contract: futures

14I.—(1)  For the purposes of regulation 14G a “future” is a contract for the sale of property under which delivery is to be made—

(a) at a future date agreed when the contract is made, and

(b) at a price so agreed.

(2) For the purposes of paragraph (1)(b) a price is taken to be agreed when the contract is made—

(a) notwithstanding that the price is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract, or

(b) in a case where the contract is expressed to be by reference to a standard lot and quality, notwithstanding that provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.

Meaning of relevant contract: options and futures - general provisions

14J.—(1)  For the purposes of regulations 14H and 14I references to an option or a future do not include references to a contract whose terms provide—

(a) that, after setting off their obligations to each other under the contract, a cash payment is to be made by one party to the other in respect of the excess, if any, and do not provide for the delivery of any property,

(b) that each party is liable to make to the other party a cash payment in respect of all that party’s obligations to the other under the contract and do not provide for the delivery of any property, or

(c) for the delivery of any property other than property a transaction in which would fall within regulation 14F(1) where the property is delivered.

(2) Nothing in paragraph (1) has effect to exclude, from references to a future or option, a future or option whose underlying subject matter is currency.

(3) In paragraph (1) “underlying subject matter” means—

(a) in relation to a future, the property which, if the future were to run to delivery, would fall to be delivered at the date and price agreed when the contract is made, and

(b) in relation to an option, the property which would fall to be delivered if the option were exercised.

Meaning of relevant contract: contract for differences

14K.—(1)  For the purposes of regulation 14G a “contract for differences” is a contract the purpose or pretended purpose of which is to make a profit or avoid a loss by reference to fluctuations in—

(a) the value or price of property described in the contract, or

(b) an index or other factor designated in the contract.

(2) For the purposes of paragraph (1)(b) an index or factor may be determined by reference to any matter and, for these purposes, a numerical value may be attributed to any variation in a matter.

(3) For the purposes of regulation 14G none of the following is a contract for differences—

(a) an option,

(b) a future,

(c) a contract of insurance,

(d) a contract effected in the course of capital redemption business,

(e) a contract of indemnity,

(f) a guarantee,

(g) a warranty,

(h) a loan relationship.

(4) For the purposes of paragraph (3)—

“capital redemption business” means any business of a company carrying on insurance business in so far as it consists of the effecting on the basis of actuarial calculations, and the carrying out, of contracts under which, in return for one or more fixed payments, a sum or series of sums of a specified amount becomes payable at a future time or over a period;

“loan relationship” is to be construed in accordance with regulation 14L but with references to “diversely owned AIF” in that regulation treated as references to “company”.

Loan relationships or related transactions

14L.—(1)  For the purposes of regulation 14F a diversely owned AIF has a “loan relationship” if that diversely owned AIF stands (whether by reference to a security or otherwise) in the position of a creditor or debtor as respects any money debt and either—

(a) that debt is one arising from a transaction for the lending of money; or

(b) that debt is not one which arose from a transaction for the lending of money but is one—

(i) on which interest is payable to or by the diversely owned AIF, or

(ii) in relation to which exchange gains or losses arise to the diversely owned AIF, or

(iii) as respects which the conditions in paragraph (2) below are satisfied.

(2) The conditions referred to in paragraph (1)(b)(iii) are that—

(a) the diversely owned AIF stands in the position of creditor in relation to the money debt; and

(b) the money debt is one from which a discount (whether of an income or capital nature) arises to the diversely owned AIF.

(3) For the purposes of this regulation “exchange gains or losses” means profits or gains or losses which arise as a result of comparing at different times the expression in one currency of the whole or some part of the valuation put by the diversely owned AIF in another currency on an asset or liability of the diversely owned AIF.

(4) For the purposes of this regulation a “money debt” is a debt which is, or has at any time been, one that falls, or that may at the choice of the debtor or of the creditor fall, to be settled—

(a) by the payment of money,

(b) by the transfer of a right to settlement under a debt which is itself a money debt, or

(c) by the issue or transfer of shares in any company,

disregarding any other alternative exercisable by either party.

(5) Subject to paragraph (6), if an instrument is issued by any person for the purpose of representing security for, or the rights of a creditor in respect of, any money debt, then (whatever the circumstances of the issue of the instrument) that debt shall be taken for the purposes of this regulation to be a debt arising from a transaction for the lending of money.

(6) For the purposes of this regulation a debt shall not be taken to arise from a transaction for the lending of money to the extent that it is a debt arising from rights conferred by shares in a company.

(7) For the purposes of this regulation so far as relating to exchange gains or losses any currency held by the diversely owned AIF shall be treated as a money debt.

(8) For the purposes of this regulation “money” includes money expressed in a currency other than sterling.

(9) In this Part a “related transaction” in relation to a loan relationship means any disposal or acquisition (in whole or in part) of rights or liabilities under that relationship.

Units in a collective investment scheme

14M.—(1)  For the purposes of regulation 14F “units” in a collective investment scheme means the rights or interests (however described) of the participants in the collective investment scheme.

(2) For the purposes of this regulation “participant” has the same meaning as given by regulation 6(6) but with references to “authorised investment fund” and “fund” being read as references to “collective investment scheme”.

Carbon emission trading products

14N.—(1)  For the purposes of regulation 14F a carbon emission trading product is—

(a) a Community tradable emissions allowance, or

(b) a transferable unit issued pursuant to the Kyoto Protocol,

which does not otherwise fall within any other regulation of this Part.

(2) For the purpose of this regulation—

“Community tradable emissions allowance” means a transferable allowance which relates to the making of emissions of greenhouse gases which are allocated as part of a system made for the purpose of implementing any Community obligation of the United Kingdom relating to such emissions;

“the Kyoto Protocol” means the Kyoto Protocol to the United Nations Framework Convention on Climate Change signed at Kyoto on 11th December 1997(10);

“unit” includes an assigned amount unit, certified emission reductions, an emission reduction unit and a removal unit.”.

Amendment of regulation 17

11.  In regulation 17 (contents of distribution accounts) after paragraph (1) insert—

“(1A) Paragraph (1) does not apply in relation to an authorised investment fund to which Part 4A or 4B applies.”.

Amendment of regulation 48

12.  In paragraph (4) of regulation 48 (dividend distributions: general)(11) for “14C” substitute “9A”.

Amendment of regulation 51

13.  In paragraph (1)(b) of regulation 51 (participants chargeable to corporation tax: holdings in qualified investor schemes where scheme does not meet the genuine diversity of ownership condition)(12) for “14B” substitute “9A”.

Insertion of regulations 52B to 52E

14.  After regulation 52A (companies carrying on general insurance business: treatment of certain amounts of tax as foreign tax)(13) insert—

“Diversely owned AIFs and financial traders: treatment of shares and units

52B.—(1)  This regulation and regulation 52C apply if a financial trader has held, or holds, shares or units in a diversely owned AIF.

(2) In computing the trading profits or losses of the financial trader for the relevant period, the following amounts must be brought into account—

(a) all distributions received by or credited to the financial trader in respect of such shares or units for the relevant period; and

(b) any amount required to be brought into account under regulation 52C.

(3) In this regulation and in regulation 52D(2) references to distributions are subject to section 130 of CTA 2009 (insurers receiving distributions etc)(14).

(4) In this regulation and in regulations 52C and 52D—

“relevant period” means—

(a)in the case of a financial trader within the charge to corporation tax, an accounting period, and

(b)in the case of a financial trader within the charge to income tax, a period of account;

“financial trader” has the meaning given by regulation 52E.

Financial traders: amounts to be brought into account in respect of shares or units held in diversely owned AIFs

52C.—(1)  The only amounts that are to be brought into account in computing the trading profits or losses in respect of the shares or units in the diversely owned AIF for the relevant period are—

(a) amounts that are brought into account in accordance with Cases 1 to 4, and

(b) amounts within regulation 52B(2)(a).

This is subject to section 130 of CTA 2009 (insurers receiving distributions etc) and regulation 52D.

(2) Case 1 applies if the financial trader held the shares or units in a diversely owned AIF at the beginning of the relevant period and holds those shares or units throughout that period.

Where Case 1 applies, the amount to be brought into account is the difference between the market value of the shares or units at the end of the immediately preceding relevant period and the market value of those shares or units at the end of the relevant period.

(3) Case 2 applies if a financial trader acquired shares or units in a diversely owned AIF during the relevant period and retains those shares or units throughout the relevant period.

Where Case 2 applies, the amount to be brought into account is the difference between the market value of the shares or units at the end of the relevant period and the acquisition cost of those shares or units.

(4) Case 3 applies if the financial trader held shares or units in a diversely owned AIF at the beginning of the relevant period and disposes of those shares or units during that period.

Where Case 3 applies the amount to be brought into account is the difference between the market value of the shares or units at the end of the immediately preceding relevant period and the disposal value of the shares or units.

(5) Case 4 applies if the financial trader acquires shares or units in a diversely owned AIF during the relevant period and disposes of those shares or units during that period.

Where Case 4 applies the amount to be brought into account is the difference between the acquisition cost of the shares or units and the disposal value of those shares or units.

(6) In this regulation—

“acquisition cost” means the value of the consideration given for the acquisition of the shares or units;

“disposal value” means the value of the consideration received for the disposal of the shares or units;

“market value” means—

(a)in the case of shares or units in a diversely owned AIF where both the buying and selling prices of units are published regularly by the manager of the fund, an amount equal to the buying price (that is the lower price) so published on any particular date or, if none were published on that date, on the latest date before;

(b)in the case of shares or units in a diversely owned AIF where a single price is published regularly by the manager of the fund, the price so published on any particular date, or if none were published on that date, on the latest date before.

Shares and units not within regulation 52C

52D.—(1)  Regulation 52C does not apply in respect of any shares or units in a diversely owned AIF in relation to which—

(a) conditions A and B are both satisfied, or

(b) condition C is satisfied.

(2) Condition A is that the shares or units in the diversely owned AIF form part of the financial trader’s stock in trade and all the profits and losses, including distributions, arising in relation to the shares or units in the diversely owned AIF are included in the computation of the financial trader’s trading profits for the relevant period.

(3) Condition B is that the shares or units in the diversely owned AIF are accounted for under generally accepted accounting practice on the basis of fair value accounting.

(4) Condition C is that the shares or units in the diversely owned AIF are a relevant holding in respect of which the provisions of section 490 of CTA 2009(15) apply in relation to the financial trader.

(5) In paragraph (4) “relevant holding” means—

(a) any rights under a unit trust scheme;

(b) a material interest in an offshore fund; or

(c) any shares in an open-ended investment company.

Meaning of financial trader

52E.—(1)  In regulations 52B, 52C and 52D “financial trader” means a person who is carrying on a business which is—

(a) a banking business,

(b) an insurance business, or

(c) a business consisting wholly or in part of dealing in trading assets such that any profit on such assets would form part of the trading profits of that business.
This paragraph is subject to paragraphs (2) and (3).

(2) “An insurance business” in paragraph (1)(b) does not include life assurance business carried on by an insurance company and in the event that such a company carries on both life assurance business and any other insurance business that company will not be a financial trader in respect of the life assurance business.

(3) If—

(a) a financial trader, “A”, directly or indirectly transfers trading assets to a diversely owned AIF under or as part of an arrangement which has an unallowable purpose, and

(b) a connected person, “B”—

(i) holds shares or units in that diversely owned AIF at the time of the transfer; or

(ii) directly or indirectly acquires shares or units in that diversely owned AIF at a later time,

 
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