Taxation (International and Other Provisions) Act 2010 section 39-40

Alternative finance arrangements entered into before 15 October 2009

Sections 39 and 40 set out transitional modifications that apply to the alternative finance arrangements rules (commonly used for Sharia-compliant finance) where arrangements were entered into before 15 October 2009, affecting both the income tax and capital gains tax regimes.

• For pre-15 October 2009 arrangements, the definition of "financial institution" is narrower — it does not include entities that qualify solely because they enter into profit share agency arrangements, and certain other categories of institution are also excluded.
• For profit share agency arrangements entered into before that date, the agent must be a financial institution, rather than any person acting as agent — this is a stricter requirement than the current law.
• These modifications apply in parallel to both the income tax rules in Part 10A of the Income Tax Act 2007 and the capital gains tax rules in Chapter 4 of Part 4 of the Taxation of Chargeable Gains Act 1992.
• The effect is that the broader definitions and relaxed conditions introduced from 15 October 2009 onwards do not apply retrospectively to arrangements already in place before that date.