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FA05/s54A

Arrangement treated as “loan�

Where a financial arrangement between a community development finance institution (CDFI) and one of its investors, or between a CDFI and enterprise in which it invests falls within:

• FA05/s47: alternative finance return
• FA05/s49: profit share return
• FA05/s49A: profit share agency

the arrangement is treated as a “loan� for the purposes of the CITR scheme (CITM4320) and any alternative finance return or profit share return is treated as equivalent to interest.

Whether or not “qualifying investments� or “relevant investments�

If an arrangement does qualify for such treatment as a “loan� for CITR purposes it does not necessarily mean that the investment will satisfy the conditions required for it also to be a qualifying investment in the CDFI (CITM4010), or relevant investment by the CDFI (CITM3030).

In order to determine:

• if such an arrangement can be treated as a qualifying investment or a relevant investment, and, if it can,
• the timing, amount and outstanding balance of the investment for the purposes of the scheme

it is necessary to read the CITR rules with certain modifications.

»Ê¹ÚÌåÓýappse modifications equate the arrangements involved in a conventional loan (e.g. amount and timing of the loan, payment of interest, capital outstanding) as set out in the CITR rules, with the mechanics of the arrangements covered by FA05/s47, s49 & 49A.

For example, in order to be a qualifying investment in a CDFI the length of time funds are committed to the CDFI under an AFA, and the extent to which they may be repaid within the five-year period, must be equivalent to the conditions that must be met by conventional loans (CITM4020).

Similarly, if a CDFI enters into an AFA with a profit-distributing qualifying enterprise the rate of alternative finance return or profit share return must at or above the equivalent of a market rate of interest if it is to be a relevant investment (CITM3060).

Detail on specific arrangements

For more detail on how the CITR rules are to be read when dealing with arrangements under FA05/s47, s49 & 49A, see:

CITM4340	FA05/s47: alternative finance return
CITM4350	FA05/s49: profit share return
CITM4360	FA05/s49A: profit share agency