03.10 – Debt or Equity Interests regularly traded on an established securities market

The Agreement makes clear that with regard to Depository and Custodial Institutions and Specified Insurance Companies that the only debt or equity interests reportable are those where the class of interest has been established for the avoidance of reporting under the Agreement.

The rules differ for Investment Entities that are Financial Institutions solely because they are an Investment Entity. Here the Agreement excludes those debt and equity interests that are “regularly traded on an established securities market”.

For the purposes of the Agreement, an Equity or Debt Interest will be considered “regularly traded” if it is listed on a recognised stock exchange. As such HMRC will treat the term regularly traded on an established securities market, as having the meaning as per Section 1005(3) ITA 2007.

However please see the restrictions to this treatment set out below.

HMRC publishes tables of named recognised stock exchanges (Table 1) and recognised stock exchanges under the law of named jurisdictions (Table 2). Both of these tables state which markets on which securities would meet the HMRC definition of ‘listed’ for the purposes of HMRC legislation.


Provided that the debt or equity interest meets the required conditions for “regularly traded on an established securities market” there is no need to check annually if any transactions have been undertaken. This provides consistency with existing HMRC treatment and “recognised stock exchange” includes the London Stock Exchange, AIM and PLUS.

The main markets of the London Stock Exchange and the PLUS Listed market meet the US Established Securities Market definition in their own right as they are EU Regulated Markets under Title III MiFID and are included in the FSA list of Regulated Markets.

The AIM, PLUS Quoted and PLUS Traded Markets are not Regulated Markets under Title III MiFID.

However for the purposes of this legislation HMRC view these as also meeting the requirement as they are all markets of exchanges that have been designated as recognised investment exchanges by the FSA, they are recognised stock exchanges for the purposes of the US/UK Double Tax Convention (Article 23 uses the term listed or admitting to dealings on a recognised stock exchange) and they are within Section 1005 ITA 2007.

Restrictions applying to regularly traded on an established securities market

To prevent the risk that an entity could circumvent FATCA reporting by seeking a listing where there is no intention of the investment vehicle being widely available HMRC will in all cases treat as Financial Accounts those equity or debt interests established with a purpose of avoiding reporting in accordance with the Agreement including interests that nevertheless meet the underlying criteria for regularly traded on an established securities market.

Where there is an attempt to set up a particular interest or class of interest to avoid reporting under the Agreement, then all debt and equity interests will become reportable. This also should achieve the objectives of not requiring major financial institutions to report on their interests but targets reporting at where it will be of most relevance.

In assessing whether a class of interest has been set up to avoid reporting HMRC will consider a number of factors, such as, for example:

  • whether the Investment Entity is subject to regulation in the UK
  • it complies with HMRC conditions in relation to the provision of certain tax reliefs (for example in regard to HMRC approval for Investment Trust Companies and Venture Capital Trusts);
  • whether the vehicle complies with the Genuine Diversity of Ownership Condition (see for example regulation 9A of SI 2006/964) which targets certain tax benefits only to funds where there is an intention that it is held widely for the benefit of a number of investors;
  • whether the investor has any right to redeem their holding at net asset value;
  • the degree to which the assets held in the underlying portfolio are exposed to investment or trading risk, (for example most ITCs will be listed under Chapter 15 of the UK Listing Rules (closed-ended investment funds). These rules require a company to have a published investment policy that demonstrates how they intend to manage their assets with a view to spreading investment risk), and
  • whether the product is publically advertised through the issuance of a prospectus.

Please note the above is not an exhaustive list and where appropriate HMRC will consider each case on its particular circumstances.