The Authorised Investment Funds (Tax) (Amendment No. 2) Regulations 2010

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964) (“the principal Regulations”).

Regulation 1 provides for citation, commencement and effect. Regulation 2 introduces the amendments to the principal Regulations.

Regulations 2 to 8 make amendments to the principal Regulations.

Regulation 3 amends regulation 13 (treatment of interest distributions for purposes of loan relationships) to prevent an interest distribution being treated as interest under a loan relationship to the extent it is derived from franked investment income.

Regulations 4 to 8 make provision in relation to cases where all or part of a dividend distribution is ultimately derived from overseas dividend income.

Regulation 4 amends regulation 48 (general) to amend the provision relating to tax treated as deducted from a dividend distribution which is now provided for in new regulation 48B and to insert a cross reference to the new regulations inserted by these Regulations.

Regulation 5 inserts two new regulations. New regulation 48A provides that where the tax treated as deducted from a dividend distribution contains a foreign element a corresponding proportionate part of the distribution is treated as foreign income by reference to which that tax was computed.

New regulation 48B provides that the tax treated as deducted under regulation 48(2)(b) of the principal Regulations is treated as income tax except to the extent that this amount contains a foreign element. The amount of the foreign element is calculated by reference to the credit for foreign tax received by the authorised investment fund making the distribution. That amount is treated as foreign tax paid in a territory with which the United Kingdom has no double taxation arrangements in force.

Regulation 6 omits regulation 52 (repayments of tax). This provision imposed a restriction on repayments of tax which is now unnecessary in consequence of the treatment provided by new regulation 48B.

Regulation 7 omits regulation 52A (companies carrying on general insurance business: treatment of certain amounts of tax as foreign tax). This regulation specified, where certain conditions were met, the amount of tax that was to be treated as foreign tax in respect of distributions paid to a participant carrying on general insurance business. This regulation is no longer required in view of the wider provision made in new regulation 48B.

Regulation 8 amends the Schedule to insert an abbreviation of the Taxation (International and Other Provisions) Act 2010.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.