Finance Act, 1993

Undertakings for collective investment.

17.—(1) (a) In this section and section 18

“chargeable period” means an accounting period of an undertaking for collective investment which is a company or, as respects such an undertaking which is not a company, a year of assessment;

“designated assets” means—

(i) land, or

(ii) shares in a company resident in the State which are not shares—

(I) listed in the official list, or

(II) dealt in on the smaller companies market, or the unlisted securities market,

of the Irish Stock Exchange;

“designated undertaking for collective investment” means an undertaking for collective investment which, on the 25th day of May, 1993, owned designated assets for which it gave consideration (determined in accordance with section 9 of the Capital Gains Tax Act, 1975 ) the aggregate of which is not less than 80 per cent. of the aggregate of the consideration (as so determined) which it gave for the total assets it owned at that date;

“distribution” has the same meaning as it has for the purposes of the Corporation Tax Acts;

“guaranteed undertaking for collective investment” means an undertaking for collective investment all of the issued units of which, on the 25th day of May, 1993, are units in respect of each of which the undertaking will make one payment only, being a payment—

(i) to be made on a specified date in cancellation of those units, and

(ii) which is the aggregate of—

(I) a fixed amount, and

(II) an amount, which may be nil, determined by a stock exchange index or indices;

“relevant Regulations” means the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 ( S.I. No. 78 of 1989 );

“undertaking for collective investment”, subject to paragraph (b), means—

(i) a unit trust scheme, other than—

(I) a special investment scheme within the meaning of section 13 , or

(II) a unit trust mentioned in section 31 (4) of the Capital Gains Tax Act, 1975 ,

which is, or is deemed to be, an authorised unit trust scheme within the meaning of the Unit Trusts Act, 1990 , and which has not had its authorisation under that Act revoked,

(ii) any other undertaking which is an undertaking for collective investment in transferable securities within the meaning of the relevant Regulations, being an undertaking which holds an authorisation issued pursuant to the relevant Regulations and that authorisation has not been revoked, or

(iii) any authorised investment company within the meaning of Part XIII of the Companies Act, 1990 , which—

(I) has not had its authorisation under that Part of the said Act revoked, and

(II) has been designated in that authorisation as an investment company which may raise capital by promoting the sale of its shares to the public and has not ceased to be so designated,

which is neither an offshore fund within the meaning of section 65 (1) of the Finance Act, 1990 , nor a specified collective investment undertaking within the meaning of section 18 (as amended by this Act) of the Finance Act, 1989 ;

“unit” includes a share and any other instrument granting an entitlement—

(i) to a share of the investments or relevant profits of, or

(ii) to receive a distribution from,

an undertaking for collective investment;

“unit holder” means, in relation to an undertaking for collective investment, any person who by reason of the holding of a unit, or under the terms of a unit, in the undertaking is entitled to a share of any of the investments or relevant profits of, or to receive a distribution from, the undertaking;

“standard rate” has the meaning assigned to it by section 1 (1) of the Income Tax Act, 1967 ;

“standard rate per cent.” has the meaning assigned to it by section 155 (5) of the Corporation Tax Act, 1976 .

(b) For the purposes of this section and section 18 , references to an undertaking for collective investment in those sections, other than in this paragraph, shall be construed so as to include a reference to a trustee, management company or other such person who—

(i) is authorised to act on behalf, or for the purposes, of the undertaking, and

(ii) habitually does so,

to the extent that such construction brings into account for the said purposes any matter relating to the undertaking, being a matter which would not otherwise be brought into account for those purposes.

(c) For the purposes of this section—

(i) as respects an undertaking for collective investment which is a company, where an accounting period of the company begins before the 6th day of April, 1994, and ends on or after that day, it shall be divided into two parts, one beginning on the day on which the accounting period begins and ending on the 5th day of April, 1994, and the other beginning on the 6th day of April, 1994, and ending on the day on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the company, and

(ii) without prejudice to the provisions of section 29 (2) of the Finance Act, 1984 , any attribution of income or chargeable gains of such an undertaking to periods treated as separate accounting periods by virtue of subparagraph (i) shall be made—

(I) as respects such income, on the basis of the time that income arises to the undertaking, and

(II) as respects such capital gains, on the basis of the time of disposal of the assets concerned,

and section 155 (13) of the Corporation Tax Act, 1976 , shall not have effect for the purpose of such attribution.

(2) (a) Other than in the case of subsections (7) to (9) of section 18 (as amended by this Act) of the Finance Act, 1989 , that section shall not apply, and the following provisions of this section shall apply, to an undertaking for collective investment as respects the chargeable periods of the undertaking ending on or after—

(i) the 6th day of April, 1994, if the undertaking was carrying on a collective investment business on the 25th day of May, 1993, or

(ii) the 25th day of May, 1993, if the undertaking was not carrying on such a business at that date.

(b) As respects an undertaking for collective investment which is a company, the corporation tax which is chargeable on its profits on which corporation tax falls finally to be borne for a chargeable period shall be reduced, for all the purposes of the Tax Acts, so that, before it is reduced by any credit, relief or other reduction under those Acts (other than under this section), it is the standard rate, for the year of assessment in which the chargeable period falls, of those profits:

Provided that, for the purposes of the foregoing provision of this paragraph, where part of the chargeable period falls in one year of assessment (referred to hereafter in this proviso as the “first-mentioned year of assessment”) and the other part falls in the year of assessment succeeding the first-mentioned year of assessment and different standard rates are in force for each of those years, “the standard rate” shall be deemed to be a rate per cent. calculated by the formula—

(A × C)

________

E

+

(B × D)

________

E

where—

A is the standard rate per cent. in force for the first-mentioned year of assessment,

B is the standard rate per cent. in force for the year of assessment succeeding the first-mentioned year of assessment,

C is the length of that part of the chargeable period falling in the first-mentioned year of assessment,

D is the length of that part of the chargeable period falling in the year of assessment succeeding the first-mentioned year of assessment, and

E is the length of the chargeable period.

(c) As respects an undertaking for collective investment which is not a company—

(i) the capital gains tax which is chargeable on the chargeable gains accruing in a year of assessment to the undertaking shall be reduced so that the amount of such tax, before it is reduced by any credit, relief or other deduction under any provision, other than under this section, of the Tax Acts or the Capital Gains Tax Acts, is the standard rate, for the year of assessment, of the chargeable gains accruing to the undertaking, and

(ii) only so much of income arising or gains accruing to the undertaking shall be chargeable to income tax or capital gains tax, as the case may be, as is, or is to be—

(I) paid to, or

(II) accumulated or invested for the benefit of,

unit holders in the undertaking or as would be so paid, accumulated or invested if any gains accruing to the scheme by virtue of subsection (4) were gains on an actual disposal of the assets concerned.

(3) (a) (i) Section 2 of the Corporation Tax Act, 1976 , shall not have effect as respects a distribution received by an undertaking for collective investment which is a company; and the income represented by the distribution shall be equal to the aggregate of the distribution and the amount of the tax credit in respect of the distribution.

(ii) Where an undertaking for collective investment which is a company is entitled to a tax credit in respect of a distribution which is chargeable, by virtue of subparagraph (i), to corporation tax—

(I) it may set the credit against the corporation tax, as reduced by virtue of subsection (2) (b), chargeable on its profits for the chargeable period in which the distribution is made and, where the credit exceeds that corporation tax, the excess shall be paid to it, and

(II) notwithstanding the provisions of sections 24 and 155 of the Corporation Tax Act, 1976 , the income represented by the distribution shall not be franked investment income for the purposes of sections 15 and 25 of that Act.

(b) Where a company resident in the State makes a distribution to an undertaking for collective investment which is not a company, the tax credit, if any, attaching to the distribution shall be set against—

(i) the income tax chargeable in respect of income arising to, or

(ii) the capital gains tax, as reduced by subsection (2) (c) (i), chargeable in respect of chargeable gains accruing to,

the undertaking for the year of assessment in which the distribution is made and—

(I) where the credit exceeds the aggregate of that income tax and capital gains tax, the excess shall be paid to the undertaking, and

(II) a payment shall not be made, in respect of the credit, under section 88 (4) of the Corporation Tax Act, 1976 .

(c) Notwithstanding any provision of that Chapter, Chapter IV of Part I of the Finance Act, 1986 , shall apply to a deposit, within the meaning of the Chapter, which is for the time being beneficially owned by an undertaking for collective investment which is not a company as if such a deposit were not a relevant deposit, within the meaning of the Chapter.

(4) (a) Every asset (other than assets to which subsection (5) (a) (ii) relates) of an undertaking for collective investment on the day on which a chargeable period of the undertaking ends shall, subject to the subsequent provisions of this subsection, be deemed to have been disposed of and immediately reacquired by the undertaking at the asset's market value on the said day.

(b) Subject to paragraphs (c) and (d), chargeable gains or allowable losses, which would otherwise accrue to an undertaking for collective investment on disposals deemed by virtue of paragraph (a) to have been made in a chargeable period (other than a period in which the collective investment business of the undertaking concerned ceases) of the undertaking, shall be treated, subject to subparagraphs (ii) and (iii), as not accruing to it, and instead—

(i) there shall be ascertained the difference (hereafter in this subsection referred to as “the net amount”) between the aggregate of those gains and the aggregate of those losses, and

(ii) one-seventh of the net amount shall be treated as a chargeable gain or, where it represents an excess of losses over gains, as an allowable loss accruing to the undertaking on disposals of assets deemed to be made in the chargeable period, and

(iii) a further one-seventh shall be treated as a chargeable gain or, as the case may be, as an allowable loss accruing on disposals of assets deemed to be made in each succeeding chargeable period until the whole amount has been accounted for.

(c) For any chargeable period of less than one year, the fraction of one-seventh referred to in paragraph (b) (iii) shall be proportionately reduced; and where this paragraph has had effect, in relation to any chargeable period before the last such period for which paragraph (b) (iii) applies, the fraction treated as accruing in that last chargeable period shall be reduced so as to secure that no more than the whole of the net amount has been accounted for.

(d) Where the collective investment business of the undertaking concerned ceases before the beginning of the last of the chargeable periods for which paragraph (b) (iii) would apply in relation to a net amount, the fraction of that amount that is treated as accruing in the chargeable period in which the business ceases shall be such as to secure that the whole of the net amount has been accounted for.

(5) Notwithstanding any provision of the Capital Gains Tax Acts, for the purposes of computing chargeable gains accruing to an undertaking for collective investment—

(a) (i) section 3 of the Capital Gains Tax (Amendment) Act, 1978 , and

(ii) section 19 of the Capital Gains Tax Act, 1975 , as it applies to assets specified in that section or in any other provision of the Capital Gains Tax Acts,

shall not have effect,

(b) paragraph 14 of Schedule 1 to the Capital Gains Tax Act, 1975 , shall, as respects—

(i) subparagraphs (1) and (2), and

(ii) subparagraph (3), in so far as a chargeable gain is not thereby disregarded for the purposes of that subparagraph,

apply as if subsection (4), paragraph (a) (ii) and paragraph (c) had not been enacted, and

(c) if the undertaking was carrying on a collective investment business on the 25th day of May, 1993, it shall be deemed to have acquired each of the assets it holds on the 5th day of April, 1994, apart from assets referred to in paragraph (a) (ii), at the asset's market value at that date.

(6) Subject to subsection (4) (b), where an undertaking for collective investment incurs allowable losses on disposals or deemed disposals of assets in a chargeable period, the amount (if any) by which the aggregate of such allowable losses exceeds the aggregate of chargeable gains on such disposals in the chargeable period, shall—

(a) be disregarded for the purposes of subsection (1) of section 5 of the Capital Gains Tax Act, 1975 ,

(b) be treated as reducing the income chargeable to income tax or corporation tax arising to the undertaking in that chargeable period, and

(c) to the extent that it is not treated as reducing income arising to the undertaking in the said chargeable period, be treated, for the purposes of the Capital Gains Tax Acts and this subsection, as an allowable loss incurred on a disposal of an asset deemed to be made in the next subsequent chargeable period.

(7) Notwithstanding any provision of the Tax Acts or the Capital Gains Tax Acts, unit holders in an undertaking for collective investment shall not be entitled to any credit for, or repayment of, any income tax, capital gains tax, or corporation tax paid in respect of income arising to, capital gains accruing to or profits of the undertaking.

(8) Notwithstanding subsection (2), the provisions of this section (other than this subsection) and section 18 shall be construed and have effect as respects designated undertakings for collective investment and guaranteed undertakings for collective investment as if—

(a) every reference therein to the 5th day of April, 1994, were a reference to the 5th day of April, 1998, and

(b) every reference therein to the 6th day of April, 1994, were a reference to the 6th day of April, 1998,

and, as respects such an undertaking, those provisions shall not have effect except as so construed:

Provided that—

(i) if the aggregate of the consideration (determined in accordance with section 9 of the Capital Gains Tax Act, 1975 ) given for the designated assets owned, at any time after the 25th day of May, 1993, and before the 5th day of April, 1997, by a designated undertaking for collective investment is less than 80 per cent. of the aggregate of the consideration (as so determined) given for the total assets owned by the undertaking at that time, or

(ii) if at any time before the 5th day of April, 1997, a guaranteed undertaking for collective investment makes any payment to unit holders in the undertaking which is not a payment in cancellation of those units,

this subsection (other than this proviso) shall have effect and be construed as respects that undertaking as if—

(I) each reference therein to the 5th day of April, 1998, were a reference to the 5th day of April, and

(II) each reference therein to the 6th day of April, 1998, were a reference to the 6th day of April,

next subsequent to that said time.