IFM04360 - AIFs: Property authorised investment funds (PAIFs): tax treatment of PAIFs and distributions: cancellation of tax advantage

Cancellation of tax advantage (regulation 69Z10 SI 2006/964)

Where a manager of an open-ended investment company (OEIC) which is subject to the PAIF regulations has used the provisions within those regulations in order to try to obtain a tax advantage for the PAIF or another person, a notice may be issued by HMRC to the PAIF specifying the tax advantage. When this is done HMRC will also counteract the advantage by an adjustment in one or more of the following ways:

• an assessment;
• the cancellation of a right of repayment;
• a requirement to return a repayment already made; or
• the computation or re-computation of profits or gains, or liability to tax, on a basis specified by the Commissioners of HMRC in the notice.

A further remedy open to HMRC is to assess the company to an additional amount of income tax it considers is equivalent to the value of the tax advantage.

Note that the term ‘tax advantage’ has the meaning given by section 1139 of the Corporation Tax Act 2010. However, an OEIC does not obtain a tax advantage by reason only of being within the PAIF regulations unless it does something (whether before or during the application of those regulations) which is wholly or principally designed to create or inflate or apply a loss, deduction or expense (whether or not suffered or incurred by the OEIC).

Appeal against the issue of a notice (regulation 69Z11 SI 2006/964)

Where a notice is issued for the reasons stated above, if the PAIF disagrees it may appeal to the First-tier Tribunal. The tribunal may:

• affirm, vary or cancel the notice, and
• affirm, vary or quash an assessment.