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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Authorised investment funds (AIFs): gross payment of interest distributions: reputable intermediary condition

Payment of interest distributions (for non-resident participants) to a reputable intermediary without deduction of tax - SI2006/964 Regulations 26 to 29

Authorised investment funds must pay interest distributions in respect of an individual who is not ordinarily resident without deducting tax where the reputable intermediary test is satisfied in respect of the participant (beneficial owner of units/shares in the fund). There are three conditions, all of which must be fulfilled.

  • The payment must be made to an intermediary that is a company.
  • That company must be subject to either the EC money laundering directive or to equivalent non-EC provisions.
  • The fund (trustees of the authorised unit trust or the directors of the open-ended investment company) must have reasonable grounds for believing that the unit holder is not ordinarily resident in the UK.

A company is subject to the EC money laundering directive if it is a credit or financial institution as defined by Article 1 of Directive 91/308/EEC, as amended by directive 2001/97/EC. In the event of the directive ceasing to have effect or being further amended, the Treasury has powers to make consequential amendments.

The reputable intermediary condition is intended to recognise the practical difficulties that fund administrators might have in obtaining completed declaration forms (CTM48640) from unit holders where units are placed through an intermediary with non-resident investors. It seeks to take account of the ‘know your customer’ rules that an intermediary will have applied before placing an investment on behalf of a unit holder. It does not remove responsibility from the fund trustees or directors for ensuring that they have reasonable grounds for believing that a participant is entitled to payment without deduction. However, where the conditions are met in respect of a unit holder, payments must be made without deduction of tax.