Taxes Consolidation Act 1997 Schedule 19 paragraph 10

Offshore funds investing in trading companies

Paragraph 10 of Schedule 19 relaxes the distribution test thresholds in section 744(3) where an offshore fund invests in trading companies, so that venture capital-type funds are not caught by the offshore funds legislation.

• A "trading company" is one whose business consists wholly of carrying on a trade and does not include dealing in commodities, currency, securities or other financial assets, or banking or money-lending.
• Where a fund holds interests in a single trading company, the asset concentration limit under section 744(3)(b) is raised from 10% to 20% of total fund assets.
• The share capital ownership limit under section 744(3)(c) is raised from more than 10% to 50% or more of the issued share capital (or any class of it) of a trading company.
• These modifications ensure that funds which provide venture capital — and which typically take substantial stakes in the companies they back — can still qualify as distributing funds.