IFM04355 - AIFs: Property authorised investment funds (PAIFs): tax treatment of PAIFs and distributions: corporation tax charge where there are excess financing costs in a qualified investor scheme
The charge to tax (regulation 69Z9 SI 2006/964)
Where the result of the calculation set out in the previous page (IFM04350) is less than 1.25, a charge to corporation tax will arise. The amount of the charge is determined as follows:
- work out what the financing costs, taking into account the actual income, would have given a result of 1.25 – this gives the ‘theoretical financing costs’,
- work out the amount the actual financing costs exceed the theoretical financing costs to give ‘the excess financing cost’,
- divide the main rate of corporation tax charged for the accounting period in question by the rate that applies to open-ended investment companies for that same period – the result of this is called the ‘multiplier’, and
- multiply the excess financing costs by the multiplier.
The result is the amount charged to tax. This amount is treated as income chargeable to tax. The income is treated as arising to the residual part of the business (and not to the tax-exempt part), in the same accounting period as the limit was breached and must be included in the CT self-assessment for that period.
No loss, deficit, management charges, expenses or allowances that might otherwise be offset against an amount chargeable can be used to reduce the amount of income brought into charge.