Income Tax (Trading and Other Income) Act 2005 section 378A

Offshore fund distributions

Section 378A provides that dividends paid by certain offshore funds are treated as interest for income tax purposes, where the fund's qualifying investments exceed 60% of its total assets.

• When an offshore fund pays a dividend and fails the qualifying investments test at any time in the relevant period, that dividend is treated as interest for income tax purposes
• The qualifying investments test is failed if the market value of the fund's qualifying investments exceeds 60% of the market value of all the fund's assets, excluding cash awaiting investment
• The relevant period is either the fund's relevant period of account or, if longer, the 12 months ending on the last day of that period — with the relevant period of account being either the last period ending before the dividend is paid (where sufficient undistributed profits exist) or the period in which the dividend is paid
• The same treatment extends to manufactured overseas dividends, but only where they represent a distribution to which this section would apply