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HM 35B: Treatment of certain provisions made by multi-rate PIEs
or “How multi-rate PIEs can include future income and costs in their calculations”
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“Rules for calculating tax and income for foreign investors in investment entities”

When a foreign investment PIE (Portfolio Investment Entity) calculates its income tax and works out how much income to attribute to its notified foreign investors, it needs to follow some special rules.

The PIE must treat all its notified foreign investors as if they were one group. When the PIE calculates the taxable amount for this group, it’s the same as all the income the PIE earned for that period.

When the PIE is working out how much income to attribute to each notified foreign investor, it can’t include any losses, expenses, or credits for fees. If the calculation results in a negative number, it’s treated as zero instead.

If you’re a transitional resident who has chosen to use a special tax rate, you’re treated the same as a notified foreign investor for these calculations.

There’s a special rule for some notified foreign investors who qualify for tax credits on supplementary dividends. These investors are treated as a separate group. For this group, the PIE’s income includes any supplementary dividends they’re entitled to.

You can find more details about these calculations in sections HM 35 to HM 47 of the Income Tax Act 2007.

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Next up: HM 36: Calculating amounts attributed to investors

or “How your share of a PIE's income or loss is calculated”
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Part H Taxation of certain entities
Portfolio investment entities: Attributing income to investors

HM 35CDetermining amounts for notified foreign investors

  1. This section applies for the purposes of sections HM 35 to HM 47 when a foreign investment PIE determines its income tax liability and calculates an amount of attributed PIE income for a notified foreign investor in the PIE.

  2. For the purposes of the calculations, the PIE must treat its notified foreign investors as a single notional investor class.

  3. In section HM 35(5), in relation to an investor class that is made up of notified foreign investors, the taxable amount for an attribution period is equal to the assessable income of the PIE for the period for each particular income source and investment type of income of the class.

  4. For the purposes of section HM 36, in the calculation of an amount attributed to a notified foreign investor,—

  5. the item loss in the formula in subsection (2) is treated as zero:
    1. the item expenses in the formula in subsection (2) is treated as zero:
      1. the item credits for fees in the formula in subsection (2) is treated as zero:
        1. if the result given by the formula is negative, the result is treated as zero.

          1. For the purposes of this section, a transitional resident who has chosen under section HM 55D(9) to use the specified prescribed investor rate is treated as if they were a notified foreign investor.

          2. Subsection (7) applies for the purposes of section HM 35 for a notified foreign investor (a qualifying investor) in a foreign investment PIE who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends). It overrides subsections (2) and (3), and for the purposes of the calculation of amounts attributed to them, the qualifying investors are treated as a separate class.

          3. For the purposes of section HM 35(3)(a), the assessable income of the PIE is the total amount of the PIE's assessable income attributed to the class of qualifying investors for the attribution period, including any supplementary dividends to which the qualifying investors are entitled.

          Notes
          • Section HM 35C: inserted, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 69(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
          • Section HM 35C(5) heading: inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C(5): inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C(6) heading: inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C(6): inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C(7) heading: inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C(7): inserted, on (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C list of defined terms prescribed investor rate: inserted, on , by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
          • Section HM 35C list of defined terms taxable amount: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section HM 35C list of defined terms transitional resident: inserted, on , by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).