IFM36740 - Avoidance of double taxation: Claim under the second provision

Claim under the second provision

ITA07/S809EZG(2)

ITA07/S809EZG(5)

This provision applies where income tax is charged to an individual in respect of a disguised fee under the disguised investment management fees (DIMF) rules and this fee has been paid by way of a loan or advance. If this loan or advance is then discharged by using some of the profits of the fund then there may be a further DIMF charge.

Example: Loan advance paid to manager

An individual investment manager gets a loan from an investment scheme. Three years later, profits arise in a way that means the profits are not included as profits of a trade and this profit is used to discharge the outstanding loan. The DIMF rules determine that an untaxed management fee arises both at the time the loan is made and again when the profits are used to repay the individual’s loan.

The individual has been taxed twice despite the latter profits offsetting the amount that would have at some point been repayable under the individual’s loan. Relief can be given against the DIMF charge which is due in respect of the latter profit payment.

Value of the consequential adjustment that can be claimed under the second double tax relief provision ITA07/S809EZG(2)

ITA07/S809EZG(5)(b)

The value of the consequential adjustments claimed must not exceed the lesser of:

• the income tax charged on the individual in respect of the disguised fee that arises under the arrangements by way of a loan or advance; and
• the tax charged on the individual in relation to another sum which arises to the individual under the arrangements up to the value of the loan or advance that has to be repaid as a result of receiving this other sum.