PART 4THE TREATMENT OF PARTICIPANTS IN AUTHORISED INVESTMENT FUNDS

CHAPTER 3PARTICIPANTS CHARGEABLE TO CORPORATION TAX

Dividend distributions

General48

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

F3Subject to paragraphs (2A)F9, (2B) and (2BA), 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 F7tax at a rate equal to the basic rate of income tax for the F4tax year in which the distribution date falls, from a corresponding gross amount.

F12A

But paragraph (2) does not apply to a dividend distribution to which F6Chapter 2 of Part 3 of CTA 2009 applies.

2B

If, on the distribution date, the participant is the manager of the authorised investment fund, paragraph (2) shall not apply to the extent that the rights in respect of which the dividend distribution is made are held by him in the ordinary course of the manager’s business as manager of the fund.

F102BA

Paragraph (2)(b) does not apply to so much of any dividend distribution as on a just and reasonable apportionment is attributable to an unallowable arrangement.

2BB

For the purposes of paragraph (2BA), an unallowable arrangement is an arrangement the main purpose or one of the main purposes of which is to secure that an amount of tax, or an increased amount of tax, is treated as deducted under paragraph (2)(b).

2BC

In paragraph (2BB), “arrangement” includes any arrangement, agreement, scheme, transaction, series of transactions or understanding (whether or not legally enforceable).

F82C

Regulation 48A makes provision in relation to the unfranked part of the dividend distribution treated as an annual payment under paragraph (2)(a) and regulation 48B makes provision in relation to the tax treated as deducted under paragraph (2)(b).

3

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

F24

This regulation does not apply in respect of a holding in a qualified investor scheme if the scheme has not met the genuine diversity of ownership condition in regulation F59A in relation to an accounting period.