Income Tax Act 2007 (c. 3)

Part 13 U.K. Tax avoidance

[F1 CHAPTER 5F U.K. Income-based carried interest

Textual Amendments

F1 Pt. 13 Ch. 5F inserted (with effect in accordance with s. 37(4) of the amending Act) by Finance Act 2016 (c. 24), s. 37(2)

Interpretation U.K.

809FZZ Interpretation of Chapter 5F U.K.

(1) In this Chapter—

• “5% interest”, “15% interest”, “20% interest”, “25% interest” and “40% interest” are to be construed in accordance with subsection (4);

• “act together”: two or more investment schemes act together in relation to a company if—

  (a)

  they enter into contractual arrangements (with or without other persons) in relation to the conduct of the company's affairs,

  (b)

  the arrangements are negotiated on arm's length terms, and

  (c)

  the investment schemes act together to secure greater control or influence over the company's affairs than they would be able to secure individually;

• “alternative finance arrangements” has the same meaning as in Part 6 of CTA 2009 (see section 501(2) of that Act);

• “arrangements” has the same meaning as in Chapter 5E (see section 809EZE);

• “associated”: two (or more) investment schemes are “associated if—

  (a)

  the same or substantially the same individuals provide investment management services to both schemes;

  (b)

  the investment schemes have the same or substantially the same investments, and

  (c)

  the schemes act together in relation to all or substantially all of the investments they acquire;

• “carried interest” has the same meaning as in section 809EZB (see sections 809EZC and 809EZD);

• “collective investment scheme” has the same meaning as in Chapter 5E (see section 809EZE);

• “connected” and “unconnected” are to be construed in accordance with subsections (6) and (7);

• “contract for differences” has the same meaning as in Part 7 of CTA 2009 (see section 582 of that Act);

• “controlling equity stake fund” has the meaning given in section 809FZM;

• “controlling interest” has the meaning given in subsection (3);

• “derivative contract” has the same meaning as in Part 7 of CTA 2009 (but see below);

• “designated” has the same meaning as for accounting purposes;

• “direct lending fund” and “direct loan” have the meanings given in section 809FZQ;

• “exchange gain or loss” is to be construed in accordance with section 475 of CTA 2009;

• “external investor” has the same meaning as in Chapter 5E (see section 809EZE);

• “fund of funds” has the meaning given in section 809FZO;

• “future” has the same meaning as in Part 7 of CTA 2009 (see section 581 of that Act);

• “interest rate contract” means—

  (a)

  a derivative contract whose underlying subject-matter is, or includes, interest rates, or

  (b)

  a swap contract in which payments fall to be made by reference to a rate of interest;

• “investing life” is to be construed in accordance with subsection (2);

• “investment” does not include—

  (a)

  cash awaiting investment, or

  (b)

  cash representing the proceeds of the disposal of an investment, where the cash is to be distributed as soon as reasonably practicable to investors in the scheme;

• “investment scheme” has the same meaning as in Chapter 5E (see section 809EZA(6));

• “limited partnership” means—

  (a)

  a limited partnership registered under the Limited Partnerships Act 1907,

  (b)

  a limited liability partnership formed under the Limited Liability Partnerships Act 2000 or the Limited Liability Partnerships Act (Northern Ireland) 2002 (c.12 (N.I.)), or

  (c)

  a firm or entity of a similar character to any of those mentioned in paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom;

• “loan relationship” has the meaning given by section 302 of CTA 2009 (but see below);

• “major interest”, in relation to land, has the meaning given by section 96 of the Value Added Tax Act 1994;

• “option” has the same meaning as in Part 7 of CTA 2009, disregarding section 580(2) of that Act;

• “real estate fund” has the meaning given by section 809FZN;

• “realisation model”: a sum of carried interest is calculated on the “realisation model” if it falls within section 809EZD(2) or (3) (disregarding section 809EZD(2)(b) and (3)(b));

• “scheme director condition” has the meaning given by section 809FZK(8) and (9);

• “secondary fund” has the meaning given by section 809FZP;

• “significant equity stake fund” has the meaning given by section 809FZL;

• “sum” has the same meaning as in Chapter 5E (see section 809EZB(3));

• “trading company” and “trading group” have the meanings given by paragraphs 20 and 21 of Schedule 7AC to TCGA 1992;

• “underlying subject matter” has the same meaning as in Part 7 of CTA 2009;

• “unlisted”: a company is unlisted if—

  (a)

  no shares of any class issued by the company are listed on any stock exchange, and

  (b)

  there are no other trading arrangements in place in respect of shares of any class issued by the company;

• “venture capital fund” has the meaning given by section 809FZK.

(2) In this Chapter—

(a) references to when a scheme starts or ceases to invest are to the time when investments start or cease to be made for the purposes of the scheme, and

(b) references to the investing life of the scheme are to the time between when a scheme starts and ceases to invest.

(3) For the purposes of this Chapter, an investment scheme has a controlling interest in a company if share capital of the company is held for the purposes of the scheme which—

(a) amounts to more than 50% of the ordinary share capital of the company, and

(b) carries an entitlement to more than 50% of—

(i) voting rights in the company,

(ii) profits available for distribution to shareholders, and

(iii) assets of the company available for distribution to shareholders in a winding-up.

(4) For the purposes of this Chapter, an investment scheme has an interest of a particular percentage in a company (for example, a 40% interest) if share capital of the company is held for the purposes of the scheme which—

(a) amounts to at least that percentage of the ordinary share capital of the company, and

(b) carries an entitlement to at least that percentage of—

(i) voting rights in the company,

(ii) profits available for distribution to shareholders, and

(iii) assets of the company available for distribution to shareholders in a winding-up.

(5) For the purposes of subsections (3) and (4) any share capital held by a company controlled by an investment scheme is to be regarded as held for the purposes of the investment scheme.

(6) For the purposes of this Chapter, an investment scheme (A) is connected with another investment scheme or person (B) if—

(a) A directly or indirectly has control of B, or

(b) the same person, directly or indirectly, has control of A and B.

(7) For the purposes of subsection (6) “control”—

(a) in the case of control of a company, is to be read in accordance with sections 450 and 451 of CTA 2010;

(b) in the case of control of a partnership, has the meaning given in section 995(3);

(c) in the case of control of an investment scheme which is not a company or partnership, or of any other person which is not a company or partnership, means the ability to secure that the affairs of that scheme or other person are conducted in accordance with one's wishes.

(8) For the purposes of the definition of “derivative contract”, read Part 7 of CTA 2009 as if—

(a) references to a company were references to an investment scheme, and

(b) references to a contract of a company were references to a contract for the purposes of an investment scheme.

(9) For the purposes of the definition of “loan relationship”, read Part 5 of CTA 2009 as if—

(a) references to a company were references to an investment scheme, and

(b) references to a loan relationship of a company were references to a loan relationship for the purposes of an investment scheme.]