The UK Regulations mirror the final U.S. Regulations and set out that an entity meets the definition of an Investment Entity if it, the entity, falls within the scope of either (i) or (ii) below:
(i) An investment entity within the meaning of the Agreement.
An entity falls within this category if it “conducts as a business” (see below), for or on behalf of a customer (for example an account holder) one or more of the following activities:
The entity will be regarded as conducting these activities as a business if the entity’s gross income attributable to such activities is equal to or exceeds 50 percent of the entity’s gross income during the shorter of:
(ii) it meets the financial assets test (see below) AND is managed by a Financial Institution.
An Entity meets the financial assets test if the entity’s gross income is primarily attributable to investing, reinvesting, or trading in financial assets (“the financial assets test”).
The meaning of what is a “financial asset” is set out in the UK Regulations and includes:
Therefore, an Investment Entity whose assets consist of non-debt direct interests in real property or land, even if managed by another Investment Entity would not be an Investment Entity.
An Investment Entity meets the “financial assets test” if the entity’s gross income attributable to such activities is equal to or exceeds 50 percent of the entity’s gross income during the shorter of:
Where an entity’s gross income is primarily attributable to investing, reinvesting, or trading in financial assets and that entity is managed by a Financial Institution that performs any of the activities, either directly or through another third party service provider, listed above, the managed entity will still be regarded as an Investment Entity.
Further guidance on when another Financial Institution is managing the assets on behalf of the entity can be found in section 2.36.