The Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009
 

The Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009

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The Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009 List of acts
 Selected UK Acts and Regulations
    Wills and probate
 
Crown Copyright Acknowledged
CONTENTS

Statutory Instruments

2009 No. 2034

Income Tax

Corporation Tax

The Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009

Made: 21st July 2009

Laid before the House of Commons: 23rd July 2009

Coming into force: 1st September 2009

PART 1

PRELIMINARY PROVISIONS

1. Citation, commencement and effect

2. Structure of these Regulations

3. Interpretation

PART 2

OPTIONAL TREATMENT OF DIVIDENDS AS INTEREST DISTRIBUTIONS

4. Circumstances in which dividends may be treated as interest distributions

5. Treatment of dividends as interest distributions

6. Notification of designation of dividends as interest distributions

7. Interest distributions not to be treated as distributions for purposes of the Tax Acts

8. Qualifying interest income

9. Qualifying interest income: further provisions

10. Interest distributions: effect for investment trust or prospective investment trust

11. Interest distributions: effect for recipients

12. Failure to obtain approval as an investment trust

PART 3

DUTY TO DEDUCT TAX FROM INTEREST DISTRIBUTIONS

Duty to deduct tax interest distributions

13. Duty to deduct tax from interest distributions: general

The reputable intermediary condition

14. The reputable intermediary condition

15. The reputable intermediary condition: further provisions

16. The reputable intermediary condition: consequences of reasonable but incorrect belief

The residence condition

17. The residence condition

18. The residence condition: declarations

19. References to beneficiaries in regulations 17 and 18

20. Interest distributions: declarations and position of investment trust or prospective investment trust

PART 4

INFORMATION AND RECORD KEEPING RELATING TO DISTRIBUTIONS

21. Information relating to distributions

22. Notification of interest distributions made without deduction of tax

23. Duty to keep and preserve records

 

The Treasury make the following Regulations in exercise of the powers conferred by section 45 of the Finance Act 2009(1).

PART 1

PRELIMINARY PROVISIONS

Citation, commencement and effect

1.—(1) These Regulations may be cited as the Investment Trusts (Dividends) (Optional Treatment as Interest Distributions) Regulations 2009 and shall come into force on 1st September 2009.

(2) These Regulations have effect in relation to amounts distributed on or after 1st September 2009.

Structure of these Regulations

2.  The structure of these Regulations is as follows—

this Part contains preliminary provisions;

Part 2 deals with the optional treatment of dividends as interest distributions;

Part 3 deals with the duty to deduct tax from interest distributions; and

Part 4 deals with information and record keeping relating to distributions.

Interpretation

3.—(1) In these Regulations—

the “Commissioners” means the Commissioners for Her Majesty’s Revenue and Customs;

“ICTA” means the Income and Corporation Taxes Act 1988(2);

“interest distribution” has the meaning given in regulation 5(2);

“period of account” has the meaning given in section 832(1) of ICTA(3); and

“qualifying interest income” means the amount determined in accordance with regulation 8.

(2) In these Regulations “recipient”, in relation to an interest distribution of an investment trust or prospective investment trust, means the beneficial owner of the interest distribution, except where the distribution is held on trust (other than under a bare trust) or forms part of the estate of a deceased person; and, in such a case, the recipient means the trustees of the trust on which the interest distribution is held or, as the case may be, the deceased person’s personal representatives.

PART 2

OPTIONAL TREATMENT OF DIVIDENDS AS INTEREST DISTRIBUTIONS

Circumstances in which dividends may be treated as interest distributions

4.—(1) Subject to paragraph (2), regulation 5 applies if—

(a) a company is an investment trust or a prospective investment trust as respects an accounting period;

(b) an amount is distributed by the company as a dividend in respect of a period of account which includes that accounting period; and

(c) the amount distributed in relation to the period of account is distributed on or before the first anniversary of the day on which that period of account ends.

(2) In a case where an amount is distributed by the company as a dividend in respect of a period of account which includes two or more accounting periods of the company, the company must be an investment trust or prospective investment trust as respects all of those accounting periods.

Treatment of dividends as interest distributions

5.—(1) If this regulation applies, the company may designate as an interest distribution all or part of the amount distributed as a dividend or dividends in respect of the period of account which includes the accounting period.

(2) A dividend, or part of a dividend, in respect of which a designation under this regulation has been made is referred to in these Regulations as an “interest distribution”.

(3) A designation under paragraph (1) becomes irrevocable at the time the interest distribution is made.

(4) The aggregate of the amounts distributed as interest distributions in relation to an accounting period may not exceed the amount of the company’s qualifying interest income for the accounting period.

Regulation 8 explains how a company’s qualifying interest income for an accounting period is calculated.

(5) For the purposes of paragraph (4), where an interest distribution is made in respect of a period of account which includes more than one accounting period the amount distributed as the interest distributions in relation to each accounting period is—

A*I/T

where—

“A” is the amount of qualifying interest income for the accounting period;

“I” is the total of the amounts distributed as interest distributions in respect of the period of account; and

“T” is the total amount of the qualifying interest income in respect of all the accounting periods in the period of account.

Notification of designation of dividends as interest distributions

6.  If a company makes a designation under regulation 5, the application by the company for approval as an investment trust under section 842 of ICTA (investment trusts)(4) as respects the accounting period to which the designation relates must include details of the total amount distributed, or to be distributed, as interest distributions in respect of the accounting period.

Interest distributions not to be treated as distributions for purposes of the Tax Acts

7.  An amount distributed as an interest distribution by an investment trust or prospective investment trust shall be treated for the purposes of the Tax Acts as if the amount distributed is not a distribution.

Qualifying interest income

8.—(1) The company’s amount of qualifying interest income for an accounting period is the amount by which the aggregate of the company’s relevant credits exceeds the aggregate of the company’s relevant debits given for that period.

(2) Subject to paragraph (3) and regulation 9, the company’s relevant credits and relevant debits are—

(a) credits and debits given for the accounting period for the purposes of Part 5 of the Corporation Tax Act 2009 (loan relationships)(5); and

(b) credits and debits given for the accounting period for the purposes of Part 7 of that Act (derivative contracts) in relation to—

(i) derivative contracts the underlying subject matter of which consists wholly of assets representing loan relationships or currency or both, and

(ii) contracts for differences the underlying subject matter of which consists wholly of any one or more of interest rates, creditworthiness and currency.

(3) The company’s relevant debits for an accounting period do not include debits arising under regulation 10 in respect of interest distributions made in respect of the accounting period.

(4) If, in relation to an accounting period, the aggregate of the company’s relevant debits exceeds the aggregate of the company’s relevant credits the amount of the qualifying interest income for that period shall be treated as nil.

(5) In this regulation expressions used in Parts 5 and 7 of the Corporation Tax Act 2009 have the same meaning as they have in those Parts.

Qualifying interest income: further provisions

9.—(1) In the circumstances specified in paragraph (2), the underlying subject matter of a derivative contract is treated for the purposes of regulation 8 as consisting wholly of assets representing loan relationships or currency or both (as the case may be).

(2) The circumstances specified are where the underlying subject matter consists only of—

(a) assets representing loan relationships or currency or both, and

(b) other underlying subject matter which is—

(i) subordinate in relation to those assets, or

(ii) of small value in comparison with the value of the underlying subject matter.

(3) In the circumstances specified in paragraph (4), the underlying subject matter of a contract for differences is treated for the purposes of regulation 8 as consisting wholly of one or more of interest rates, creditworthiness and currency (the “principal subject matter”).

(4) The circumstances specified are where the underlying subject matter consists only of—

(a) the principal subject matter, and

(b) other underlying subject matter which is—

(i) subordinate in relation to the principal subject matter, or

(ii) of small value in comparison with the value of the underlying subject matter.

(5) For the purposes of paragraphs (2) and (4), whether part of the underlying subject matter of a contract of a company is subordinate or of small value is to be determined by reference to the time when the company enters into or acquires the contract.

Interest distributions: effect for investment trust or prospective investment trust

10.—(1) This regulation applies in respect of an accounting period if a company—

(a) is an investment trust or prospective investment trust in respect of the accounting period, and

(b) makes an interest distribution in relation to the accounting period.

(2) Subject to paragraph (3), the Corporation Tax Acts have effect in relation to the company as if the interest distribution made by the company in relation to the accounting period were interest under a debtor relationship of the company (and, accordingly is an amount recognised in determining the company’s profit or loss for the period).

(3) Paragraph (2) does not apply to the extent that the aggregate of the amount distributed as interest distributions in relation to the accounting period exceeds the amount of the company’s qualifying interest income for that period.

(4) In paragraph (2) “debtor relationship” has the same meaning as in section 302(6) of the Corporation Tax Act 2009 (loan relationships).

Interest distributions: effect for recipients

11.—(1) In relation to a recipient of an interest distribution within the charge to corporation tax, the Corporation Tax Acts have effect as if the interest distribution were interest under a creditor relationship of that person.

(2) In paragraph (1) “creditor relationship” has the same meaning as in section 302(5) of the Corporation Tax Act 2009 (loan relationships).

(3) In relation to a recipient of an interest distribution within the charge to income tax, the Income Tax Acts have effect as if the interest distribution were a payment of yearly interest on the date the interest distribution is made.

(4) If a recipient of an amount distributed by a company—

(a) is informed (whether directly by the company or by a person who receives the amount on behalf of the recipient) that the amount is distributed to the recipient as an interest distribution, and

(b) is so informed at, or as soon as reasonably possible after, the time the amount is distributed,

the recipient shall treat that amount as an interest distribution (whether or not the amount distributed is an interest distribution for the purposes of the Corporation Tax Acts in relation to the company).

Failure to obtain approval as an investment trust

12.  No amount may be distributed as an interest distribution by a company in relation to an accounting period after the time the company is informed by the Commissioners that approval for the purposes of section 842 of ICTA is not given by them as respects that accounting period.

 
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