What does Corporation Tax Act 2009 section 487 do?

Section 487 provides an overview of the Chapter that governs how corporation tax treats holdings in open-ended investment companies, unit trust schemes and offshore funds. It explains that such holdings may be treated as creditor relationships when the fund fails the qualifying investments test, meaning its underlying assets are predominantly debt-based in nature.

What is the qualifying investments test under section 487 CTA 2009?

The qualifying investments test examines the underlying assets of a collective investment fund. If the fund's investments are predominantly in debt instruments or similar loan-based assets rather than equities, it fails the test. Failure triggers treatment of a company's holding in that fund as a creditor relationship for corporation tax purposes under the loan relationships regime.

What happens when a fund fails the qualifying investments test?

When a fund fails the qualifying investments test, a company holding shares or units in that fund is taxed under the loan relationships rules. Gains, losses and income from the holding are brought into account as credits and debits under the loan relationship regime, rather than being treated as equity distributions or capital gains.

Which types of funds are covered by this Chapter of the Corporation Tax Act 2009?

The Chapter covers holdings in three types of collective investment fund: open-ended investment companies, unit trust schemes and offshore funds. Specific definitions of open-ended investment company and offshore fund are provided elsewhere in the Chapter. The rules ensure that debt-based funds are taxed in line with their economic substance.

Corporation Tax Act 2009 section 487

Overview of Chapter

Section 487 provides an overview of the Chapter that deals with how corporation tax treats holdings in open-ended investment companies, unit trust schemes and offshore funds in certain circumstances.

Holdings in open-ended investment companies, unit trust schemes and offshore funds may be treated as if they were rights under a creditor relationship for corporation tax purposes
This treatment is triggered when the company, scheme or fund fails the qualifying investments test
The qualifying investments test determines whether the fund's underlying assets are predominantly loan-based in nature
Specific definitions of "open-ended investment company" and "offshore fund" are provided elsewhere in the Chapter

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