The Authorised Investment Funds (Tax) Regulations 2006 No. 964

PART 4 U.K. THE TREATMENT OF PARTICIPANTS IN AUTHORISED INVESTMENT FUNDS

CHAPTER 3 U.K. PARTICIPANTS CHARGEABLE TO CORPORATION TAX

Interest distributions U.K.

The obligation to deduct tax U.K.

47.—(1) This regulation applies if an interest distribution is made for a distribution period to a participant chargeable to corporation tax.

(2) The deduction obligation does not apply to the interest distribution.

(3) But if the participant is a company which is the trustee of the trust to which (or under which) the interest distribution is made (or received), the deduction obligation is not excluded by virtue of paragraph (2).

(4) In its application to an interest distribution to a participant in respect of accumulation units, the deduction obligation is an obligation to deduct a sum out of the amount being invested on the participant's behalf.

Dividend distributions U.K.

General U.K.

48.—(1) Paragraph (2) applies if—

(a) a dividend distribution for a distribution period is made to a participant by the legal owner of an authorised investment fund, and

(b) on the distribution date for that distribution period the participant is within the charge to corporation tax.

(2) For the purpose of computing the corporation tax chargeable upon the participant, the unfranked part of the dividend distribution is treated—

(a) as an annual payment and not as a dividend distribution or an interest distribution; and

(b) as having been received by the participant after deduction of income tax at the lower rate for the year of assessment in which the distribution date falls, from a corresponding gross amount.

(3) Regulation 49 explains how to calculate the unfranked part of the dividend distribution.

Calculation of unfranked part of dividend distribution U.K.

49.—(1) This is how to calculate the unfranked part of the dividend distribution—

(2) In paragraph (1)—

• U = the unfranked part of the dividend distribution to the participant;

• A = the amount of the dividend distribution;

• C = such amount of the gross income as does not derive from franked investment income, as reduced by an amount equal to the legal owner's net liability to corporation tax in respect of the gross income;

• D = the amount of the gross income, as reduced by an amount equal to the legal owner's net liability to corporation tax in respect of the gross income.

(3) Any reference in this regulation to the legal owner's net liability to corporation tax in respect of the gross income is a reference to the amount of the liability of the legal owner to corporation tax in respect of that gross income less the amount (if any) of any reduction of that liability which is given or falls to be given in accordance with any arrangements having effect by virtue of section 788 of ICTA (relief by agreement with other territories) or by way of a credit under section 790(1) of that Act (unilateral relief).

References to gross income U.K.

50.  For the purposes of this Chapter the references to the gross income are references to the gross income entered in the distribution accounts for the purpose of computing the total amount available for distribution to participants for the distribution period in question.

Cases where participant is the manager of the fund U.K.

51.  If on the distribution date the participant is the manager of the authorised investment fund, regulation 48(2) shall not apply in so far as the rights in respect of which the dividend distribution is made are held by him in the ordinary course of his business as manager of the fund.

Repayments of tax U.K.

52.—(1) This regulation applies if, in relation to a dividend distribution, any tax is treated as having been deducted by virtue of regulation 48(2)(b).

(2) The amount to which the participant is entitled by way of repayment of that tax must not exceed the amount of the participant's portion of the legal owner's net liability to corporation tax in respect of the gross income.

(3) In calculating the amount to which the participant is entitled by way of repayment of that tax, tax treated as having been deducted by virtue of regulation 48(2)(b) is set off in priority to any other tax under section 7(2) of ICTA and under paragraph 5 of Schedule 16 to that Act.

(4) For the purposes of paragraph (2) the participant's portion shall be determined by reference to the proportions in which participants have rights in the authorised investment fund in the distribution period in question.

[F1 Banks and other financial traders: treatment of certain amounts of tax as foreign tax U.K.

52A.— (1) This regulation applies if conditions A to D are met.

(2) Condition A is that an authorised investment fund makes a dividend distribution to which regulation 48(2) applies.

(3) Condition B is that there is some foreign tax suffered by the authorised investment fund in respect of which relief is given or falls to be given in accordance with any arrangements having effect by virtue of section 788 of ICTA (relief by agreement with other territories) or by way of a credit under section 790(1) of that Act (unilateral relief).

(4) Condition C is that the dividend distribution is made to a participant carrying on—

(a) a banking business, or

(b) any other business where a distribution from an authorised investment fund is treated as a trading receipt.

(5) Condition D is that the participant, either alone or together with connected persons (and otherwise than as a nominee or bare trustee), owns units which represent rights to 50% or more of the net asset value of the authorised investment fund.

(6) But rights in an authorised investment fund held as assets of a company’s long-term insurance fund are not treated as held by the participant (either alone or together with connected persons) for the purposes of determining whether the participant owns units which represent rights to 50% or more of the net asset value of the authorised investment fund.

(7) Section 839 of ICTA (connected persons) applies for the purposes of this regulation.

(8) For the purposes of the specified provisions, an amount of tax equal to the participant’s portion of the foreign tax mentioned in paragraph (3) is treated as foreign tax and not as United Kingdom tax.

(9) For the purposes of paragraph (8) the participant’s portion shall be determined by reference to the proportions in which participants have rights in the authorised investment fund in the distribution period in question.

(10) In paragraph (8) “the specified provisions” means—

(a) section 798A of ICTA (limits for credit on foreign tax: corporation tax on trade income), and

(b) section 804C of ICTA (insurance companies: allocation of expenses etc. in computations under Case I of Schedule D) to the extent that it applies to business of a company which is not long-term business.

(11) In this regulation “long-term business” and “long-term insurance fund” have the same meanings as in Chapter 1 of Part 12 of ICTA (insurance companies etc.).]

Textual Amendments

F1 Reg. 52A inserted (7.12.2006) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2006 (S.I. 2006/3239), regs. 1, 2