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Finance Act 2013

Amendment of section 541C (tax treatment of certain venture fund managers) of Principal Act.

46.— Section 541C of the Principal Act is amended—

(a) by substituting the following for subsection (1):

“(1) In this section—

‘carried interest’, in relation to a qualifying venture capital fund, means the share of profits (where the share ratio was agreed at the commencement of the qualifying venture capital fund) referred to in paragraph (b) of the definition of ‘total profits’ that are received by a company, partnership or individual in respect of the management of the qualifying venture capital fund;

‘carried interest to which this section applies’, in relation to a qualifying venture capital fund, means an amount of carried interest which is not greater than 20 per cent of the total profits of a qualifying venture capital fund and which is a proportion of carried interest derived from the relevant investment;

‘EEA Agreement’ means the Agreement on the European Economic Area signed in Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement;

‘EEA State’ means a state which is a contracting party to the EEA Agreement;

‘innovation activities’ means development of new technological, telecommunication, scientific or business processes;

‘investor’, in relation to a relevant investment, means a person other than a person entitled to carried interest or a person connected with that person;

‘proportion of carried interest derived from the relevant investment’ means an amount of carried interest determined by the formula—

A x B

C

where—

A is carried interest,

B is the value of all relevant investments in an EEA State (including the State) of the qualifying venture capital fund, and

C is the value of all relevant investments of the qualifying venture capital fund;

‘qualifying venture capital fund’ means an entity structured in the form of a partnership the main purpose of which is to make relevant investments and where the individuals, companies or partnerships which invest in the partnership are either limited partners or general partners (as defined in the partnership agreement) who are obliged under a legally binding agreement to provide capital sums for investment purposes over a period of time;

‘relevant investment’ means any investment made in unquoted shares or securities of a private trading company on or after 1 January 2009, where the qualifying venture capital fund retains the shares or securities in the company for a period of at least 3 years from the date of the initial investment and that company is—

(a) carrying on a business of research and development activities or innovation activities, and

(b) not carrying on an excepted trade within the meaning of section 21A;

‘research and development activities’ has the same meaning as in section 766(1);

‘total profits’, in relation to a qualifying venture capital fund, means the sum of—

(a) the profits which are attributable to investors in the fund by reference to an agreed initial rate of return, and

(b) the balance of the profits of the fund over and above those calculated by reference to the agreed initial rate of return.”,

and

(b) in subsection (2)(a) by inserting “an individual or” before “a partnership”.