A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method (Institutional Cash Series Plc: BlackRock ICS US Treasury Fund - Core (Dis) Shares)

Reference

This determination is made under section 91AAO(1)(b) of the Tax Administration Act 1994. This power has been delegated by the Commissioner of Inland Revenue to the position of Technical Specialist under section 7 of the Tax Administration Act 1994.

Discussion (which does not form part of the determination)

Core (Dis) Shares in the BlackRock ICS US Treasury Fund (the Fund) of Institutional Cash Series Plc to which this determination applies, are an attributing interest in a foreign investment fund (FIF) for New Zealand resident investors.

New Zealand resident investors are required to apply the FIF rules to determine their tax liability in respect of their investment in units in the Fund each year.

The Fund invests in a broad range of High Quality transferable securities provided that 99.5% of its net assets are invested in money market instruments issued or guaranteed by the US Government such as US Treasury Bills, notes, trust receipts and other obligations of the US Treasury or reverse repurchase agreements secured by such securities, instruments and obligations.

For New Zealand resident investors, Core (Dis) shares in the Fund do not represent an attributing FIF interest that comprises of non-ordinary shares as described in section EX 46(10)(a)-(db) of the Income Tax Act 2007. Consequently, investors would not be prevented from using the FDR method pursuant to section EX 46(8)(a) of the Income Tax Act 2007 in the absence of a determination under section 91AAO of the Tax Administration Act 1994.

However, due to the nature of the overall arrangement it is considered that the application of the FDR method would impose unnecessarily high compliance costs on New Zealand investors, as it would require performing a substantial number of quick sale adjustment calculations and associated foreign exchange calculations every time that the investor withdraws funds from the Fund during the year.

Scope of determination

This determination is issued on the basis of information provided to the Commissioner before the date of this determination and applies to an attributing interest in a FIF held by New Zealand resident investors in a non-resident issuer where:

1. This non-resident issuer:
   • is an Irish public limited company that issues multiple classes of shares; and
   • is known at the date of this determination as Institutional Cash Series plc; and
   • is structured as an umbrella fund with segregated liability between sub-funds; and
   • is managed by BlackRock Asset Management Ireland Limited, a company incorporated in Ireland;
2. The attributing interest consists of a US dollar denominated class of shares, Premier (Dis) Shares, issued by that non-resident that provide exposure solely to the Fund.
3. The Fund:
   • Holds assets that predominantly (80% or more by value at a time in the income year) comprise high-quality short-term money market instruments, which are either USD denominated financial arrangements that are debt securities or instruments that are economically equivalent to USD debt.
   • Has not entered into any arrangements which provide an overall economic return as if the securities were denominated in New Zealand dollars.
   • May make distributions of income (if any) to the shareholders in the form of cash or additional shares but does not guarantee that any income will be derived or that a distribution will be made.

Interpretation

In this determination, unless the context otherwise requires-

"Fair dividend rate method” means the fair dividend rate method under section YA 1 of the Income Tax Act 2007;

"Financial arrangement" means financial arrangement under section EW 3 of the Income Tax Act 2007;

"Foreign investment fund” means foreign investment fund under section YA 1 of the Income Tax Act 2007;

"Non-resident" means a person that is not resident in New Zealand for the purposes of the Income Tax Act 2007;

“The Fund” means the BlackRock ICS US Treasury Fund, a sub-fund of Institutional Cash Series Plc.

Determination

An attributing interest in a FIF to which this determination applies is a type of attributing interest for which a person may not use the FDR method to calculate FIF income from the interest.

Application Date

This determination applies for the 2021 income year and subsequent income years.

However, under section 91AAO(3B) of the Tax Administration Act 1994, this determination does not apply for a person and an income year beginning before the date of the determination unless the person chooses that the determination applies for the income year.

Dated on this 7th day of December 2020

Greg Adamson

Technical Specialist