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IFRS 10 - The definition of investment-related services or activities

Date recorded:

This issue relates to investment entities that establish wholly-owned intermediate subsidiaries in certain jurisdictions, which own the portfolio of investments in the group structure. The sole purpose of the intermediate subsidiaries is to minimise the tax paid by investors in the ‘parent’ investment entity. There is no other activity within the subsidiaries and the tax advantage comes about simply by virtue of returns being channelled through the jurisdiction of the subsidiaries. The issue is whether the ‘tax optimisation’ described above should be considered investment-related services or activities.

Staff said that tax optimisation should not be considered to be investment related services or activities; this is clear from paragraphs B85C, B85D and BC272 of IFRS 10. Consequently Staff recommend that the Committee should not take this issue onto its agenda and presented their proposed wording.

A member started the discussion by agreeing with Staff’s conclusion however he said that the broader issue is what is an investment and therefore Staff should look at the previous paper. Usually these sorts of entities are not just set up for tax optimisation purposes, if they will have other services and therefore these should be considered.

Another member said that there should be a clear distinction between tax optimisation and tax advisory services, and these should be considered when looking at these sorts of entities.

A member commented on the draft tentative agenda decision proposed by staff. In particular the wording used “pass through entities” seems incorrect and suggested that the wording should be revised. By using the word “pass through entities” it suggests that when looking at the financial statements this entity would be looked through and not considered.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.