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HMRC internal manual

International Manual

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HM Revenue & Customs
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Non-residents trading in the UK: through UK investment managers, brokers or Lloyd’s agents: investment manager exemption: consequences of not meeting conditions

INTM269030 outlines the effect of the Investment Manager Exemption (IME) in relation to ‘investment transactions’ in respect of which the conditions at INTM269060 are met.

Where the investment manager carries out transactions for the non-resident that are not ‘investment transactions’, or transactions in relation to which the conditions at INTM269060 are not met, those transactions will be subject to income tax or corporation tax unless otherwise exempted. The machinery provisions discussed at INTM269010 will also apply in respect of any resulting liabilities.

However, this does not affect the treatment of ‘investment transactions’ carried out by the investment manager in respect of which the conditions are met. This means that, where an investment manager carries out on behalf of a non-resident both:

  • ‘investment transactions’ in respect of which the conditions are met; and
  • other transactions that are not investment transactions, or in respect of which the conditions are not met,

it is only those other transactions that are potentially fully exposed to income tax or corporation tax, and in relation to which the machinery provisions will apply. The ‘investment transactions’ in respect of which the conditions are met are not tainted by the existence of these other transactions and will remain within the scope of the IME.

Prior to the enactment of FA08/SCH16, the effect of an investment manager carrying out transactions that were not ‘investment transactions’, or in respect of which the conditions were not met, could result in all transactions carried out by that investment manager for the same non-resident being outside the scope of the IME. Where the pre-FA08/SCH16 provisions apply, advice should be sought from the Transfer Pricing Team at Business International.

Failure to meet the 20% rule

Where the only reason that the conditions at INTM269030 are not met in relation to an ‘investment transaction’ is that the requirements of the ‘20% rule’ are not met, special provisions apply to limit the potential liability to tax. See INTM269155 for guidance on these provisions.