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HMRC internal manual

International Exchange of Information Manual

From
HM Revenue & Customs
Updated
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Investment Entity: Introduction

Investment Entity

An entity will be an Investment Entity if it meets either one of the following two sets of criteria.

Activity Based Investment Entity

An entity will be an Investment Entity if it primarily conducts as a business for or on behalf of a customer one or more of the following activities or operations:

  • Trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.).
  • Foreign exchange.
  • Exchange, interest rate and index instruments.
  • Transferable securities.
  • Commodity futures trading.
  • Individual and collective portfolio management.
  • Otherwise investing, administering or managing funds or money on behalf of other persons.

 

An entity will be regarded as primarily conducting these activities or operations as a business if its gross income from conducting these activities is at least 50% of its total gross income during the shorter of:

  • The three year period ending on 31 December in the year preceding that in which its status as in investment entity is to be determined; or
  • The period in which the entity has been in existence.

 

Managed Investment Entity

An entity will be an investment entity if it is managed by a Financial Institution [see IEIM400600] and meets the financial assets test as described below.

An entity is managed by a Financial Institution if that Financial Institution performs, either directly or through another service provider, any of the activities described in the section above (activity based investment entity) on behalf of the entity. An entity is not regarded as managed by a financial institution if that Financial Institution does not have discretionary authority to manage the entity’s assets either in whole or in part.

An entity may be managed by a mix of other entities and individuals. If one of the entities so involved in the management of the entity is a Financial Institution within the meaning of the agreements then the entity meets the requirements for being managed by a Financial Institution.

An entity meets the financial assets test if its gross income is primarily attributable to investing, reinvesting or trading in financial assets. This is a similar test to that in the section above requiring that at least 50% of its income is attributable to investing, reinvesting or trading in financial assets in the shorter of:

  • The three year period ending on 31 December in the year preceding that in which its status as in investment entity is to be determined; or
  • The period in which the entity has been in existence.

 

Some examples of how the definition of Investment Entity is applied are included in this manual at [see IEIM400780].

Certain types of entity can be complex and thus care must be taken when applying the definition of investment entity to them. Additional guidance is available for these at:

 

An entity would generally be considered to fall within one of the categories of Investment Entity if it functions or holds itself out as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buy-out fund or any similar investment vehicle established with an investment strategy of investing, reinvesting or trading in financial assets.

An entity that primarily conducts as a business investing, administering, or managing non-debt, direct interests in real property on behalf of other persons will not be an Investment Entity.