Non-residents trading in the UK: through UK investment managers, brokers or Lloyd’s agents - investment managers: "investment transaction": transactions resulting in a loan relationship or related transaction
Definitions of loan relationship and related transaction
Regulation 4 of the Investment Manager (Investment Transactions) Regulations 2014 admits transactions which result in the non-resident person becoming party to a loan relationship or a related transaction in respect of a loan relationship. Regulation 4 defines what is meant by a ‘loan relationship’ and ‘related transaction’ for these purposes.
A loan relationship includes all lending debts in relation to which the non-resident person stands as creditor or debtor, but is not limited to such arrangements. Regulation 4(1)(b) extends the definition to include non-lending (or “simple”) debts on which interest is payable or in relation to which exchange gains or losses arise. Regulation 4(2) further extends the definition to include all debts in relation to which the non-resident person stands as creditor and which give rise to a discount, whether of an income or capital nature.
A related transaction, in respect of a loan relationship, means any disposal or acquisition of rights or liabilities under that loan relationship. This means that the transactions coming within regulation 4 are not limited to those whereby the non-resident becomes party to a debt as the original creditor or debtor, but includes transactions involving the acquisition or disposal of existing debts to which the non-resident was not the original party.
Regulation 4 is designed to encompass a very wide range of transactions in debt and debt instruments. As well as making loans, depositing money at interest and transactions in debentures and bonds, regulation 4 also admit transactions involving the acquisition and disposal of loans and other debts giving rise to interest, foreign exchange gains/losses or discount; including, for example, the acquisition of a stream of ‘consumer debt’ receivables (e.g. in relation to credit cards), a portfolio of distressed debt, or a non-performing loan. Transactions in convertible debt are also within regulation 4.
Where fees are receivable by the non-resident person as a direct incidence of that person becoming party to a loan relationship or related transaction, those fees derive from an ‘investment transaction’ and are within the scope of the Investment Manager Exemption (IME). This includes commitment, placement and documentation fees where the non-resident person becomes party to a loan relationship by making a loan or placing the non-resident person’s own money. Where consent or amendment fees are receivable by the non-resident person in connection with the amendment of the terms of a loan relationship (e.g. a bond or loan) to which the non-resident person is a party as creditor or debtor, such fees will also derive from an ‘investment transaction’ and be within the scope of the IME where the amendment of terms constitutes a related transaction within regulation 4(4).
Paragraph 27 of SP01/2001 outlines the treatment of fees and remuneration deriving from arranging, originating or managing syndicated loans. Fees and remuneration arising to the non-resident person in the circumstances outlined there are not within the scope of the IME.