INTM504020 – Intra-group funding: inward investment

Forms of inward investment

In the case of companies, the substance of the inward investment will come by way of either debt or equity. In practice most companies will be funded by a mix of debt and equity.

The investment can be made in many forms. For example equity investment can come in the form of ordinary shares, preferred shares or capital contributions, and debt investment can come in the form of interest bearing loans, discounted securities or by way of finance leases.

But there are many types of investment on the boundary which have some characteristics of both debt and equity (for example interest free loans, perpetual debt or fixed rated redeemable preference shares).

It is essential therefore to consider in every case

• the legal form of the investment
• the economic substance or function of the investment
• the proper tax treatment of the returns to the investor.