INTM552210 - Hybrids: hybrid transfers (Chapter 4): payments to relevant investment funds

S259DC(9) provides that a hybrid transfer deduction/non-inclusion mismatch is disregarded if, or to the extent that, it arises as a result of the payee being a relevant investment fund.

The definition of a relevant investment fund is found in s259NA (see INTM550600), and includes OEICs, authorised unit trusts and offshore funds that meet the genuine diversity of ownership condition. These entities are in substance transparent, as income is taxed (or not taxed in the case of an exempt investor) at the level of the investor.

Unlike the financial trader exclusion this exclusion applies both to substitute payments and to the return on funding transactions on which the dual treatment condition is satisfied, see INTM552060.

Neither is the exclusion limited to payments and quasi-payments made by financial traders. Where a payment of quasi-payment is to such an investor then, to the extent the excess is attributable to the payee being a relevant investment fund, compliance is simplified because it is not necessary to consider whether there is a related party transaction or whether, for example, the quantum of a substitute payment might be an indicator that there is a structured transaction. A counteraction will not arise.