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

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)(1) 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)(2).

(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(3) 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,

B is treated as being a financial trader in relation to those shares or units.

(4) In paragraphs (1) and (3) “trading assets” means—

(a) stocks or shares;

(b) a relevant contract within regulation 14G;

(c) a loan relationship within regulation 14L;

(d) units in a collective investment scheme within regulation 14M;

(e) securities within regulation 14F;

(f) foreign currency; or

(g) a carbon emission trading product within regulation 14N,

a profit on the sale of which would form part of the trading profits of the financial trader.

(5) An arrangement includes any scheme, understanding or transaction of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions.

(6) An arrangement has an unallowable purpose if the main purpose or one of the main purposes for either A or B being party to the arrangement is to obtain a tax advantage or an income tax advantage for any person.

(7) In paragraph (6)—

“tax advantage” has the meaning given by section of 840ZA of ICTA(4); and

“income tax advantage” has the meaning given by section 683 of ITA 2007(5).”

(1)

Regulation 52A was inserted by S.I. 2006/3239, amended by S.I. 2007/683 and substituted by S.I. 2008/3159.

(2)

Section 130 was amended by paragraph 22 of Schedule 14 to the Finance Act 2009 (c. 10).

(3)

CTA 2009 is an abbreviation for the Corporation Tax Act 2009 (c. 4) inserted into Part 1 of the Schedule to the principal Regulations by regulation 32(2) of these Regulations.

(4)

ICTA is an abbreviation for the Income and Corporation Taxes Act 1988 (c. 1) provided for in Part 1 of the Schedule to the principal Regulations. Section 840ZA was inserted by paragraph 225 of Schedule 1 to the Income Tax Act 2007 (c. 3).

(5)

ITA 2007 is an abbreviation for the Income Taxes Act 2007 (c. 3) provided for in Part 1 of the Schedule to the principal Regulations.