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Finance Bill
Schedule 38 — Sale and repurchase of securities etc

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Part 2

Transitional provisions

Transitional provisions

  6       (1)      In Schedule 25 to the Finance Act 2002 (c. 23) (loan relationships) in Part 3

(transitional provisions) after paragraph 61 insert—

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“Non-trading deficit carried forward from last old accounting period

          61A                  Any amount carried forward to a new accounting period under

subsection (3) of section 83 of the Finance Act 1996 (carry forward

of so much of the non-trading deficit on a company’s loan

relationships as is not the subject of a claim under subsection (2) of

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that section)—

                      (a)                     shall be disregarded for the purposes of any claim under

subsection (2) of that section; and

                      (b)                     shall not be surrendered as group relief by virtue of section

403 of the Taxes Act 1988.”.

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          (2)      The Finance Act 2002 (c. 23) shall be taken to have been originally enacted

with the amendment made by this paragraph.

Schedule 38

Section 180

 

Sale and repurchase of securities etc

Increase of repurchase price of UK securities by amount of deemed manufactured dividend

20

  1        In section 737C of the Taxes Act 1988 (deemed manufactured payments)—

              (a)             in subsection (3)(b) (repurchase price of UK equities to be treated as

increased by gross amount of deemed manufactured dividend), omit

“gross”, and

              (b)             omit subsection (4) (definition of gross amount).

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Deemed manufactured payment where transferor or connected person makes payment

representative of dividend

  2       (1)      Section 737A of the Taxes Act 1988 (deemed manufactured payments) is

amended as follows.

          (2)      In subsection (1), for “the conditions set out in subsection (2) below”

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substitute “either the conditions set out in subsection (2) below or the

conditions set out in subsection (2A) below”.

          (3)      In subsection (2), for “conditions” substitute “first set of conditions referred

to in subsection (1) above”.

          (4)      After that subsection insert—

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              “(2A)                The second set of conditions referred to in subsection (1) above are

that—

 

 

Finance Bill
Schedule 38 — Sale and repurchase of securities etc

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                    (a)                   a dividend which becomes payable in respect of the securities

is receivable otherwise than by the transferor,

                    (b)                   the transferor or a person connected with him is required

under any agreement mentioned in subsection (1) above to

make a payment representative of the dividend,

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                    (c)                   there is no requirement under any such agreement for a

person to pay to the transferor on or before the relevant date

an amount representative of the dividend, and

                    (d)                   it is reasonable to assume that, in arriving at the repurchase

price of the securities, account is taken of the circumstances

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referred to in paragraphs (a) to (c).”.

          (5)      In subsection (3), for “subsection (2)” substitute “subsections (2) and (2A)”.

          (6)      In subsection (5)(a), after “(2)(a)” insert “or (2A)(a)”.

  3        In section 737C of the Taxes Act 1988 (deemed manufactured payments:

further provisions), after “737A(2)(a)” (in each place) insert “or (2A)(a)”.

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Provisions to cover both “put” and “call” options

  4        In section 727A(1) of the Taxes Act 1988 (accrued income scheme not to

apply to transfers of securities under repo agreements), for the words from

“and under” to the end of paragraph (b) substitute “and the transferor or a

person connected with him—

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                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

acquired under, that agreement or any related agreement, or

                    (b)                                            acquires an option to buy them back under that agreement or

any related agreement which he subsequently exercises,”.

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  5        In section 730A(1) of the Taxes Act 1988 (treatment of price differential on

sale and repurchase of securities), for paragraph (b) substitute—

                    “(b)                      the original owner or a person connected with him—

                           (i)                          is required to buy them back in pursuance of an

obligation imposed by, or in consequence of the

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exercise of an option acquired under, that agreement

or any related agreement, or

                           (ii)                         acquires an option to buy them back under that

agreement or any related agreement which he

subsequently exercises; and”.

35

  6        In section 731(2D) of the Taxes Act 1988 (provisions about purchase and sale

of securities not to apply to repo agreements etc) for the words from “and,

in” to “is entitled” in paragraph (c) substitute “and the original owner—

                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

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acquired under, that agreement or any related agreement,

                    (b)                      acquires an option to buy them back under that agreement or

any related agreement which he subsequently exercises, or

                    (c)                      under that agreement or any related agreement, is entitled”.

  7        In section 737A(1) of the Taxes Act 1988 (deemed manufactured payments),

45

for the words from “and under” to the end of paragraph (b) substitute “and

 

 

Finance Bill
Schedule 38 — Sale and repurchase of securities etc

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the transferor or a person connected with him—

                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

acquired under, that agreement or any related agreement, or

                    (b)                      acquires an option to buy them back under that agreement or

5

any related agreement which he subsequently exercises;”.

  8        In section 737E(8) of the Taxes Act 1988 (power to modify provisions about

repo arrangements), for paragraph (b) substitute—

                    “(b)                      that person or a person connected with him—

                           (i)                          is required to buy them back in pursuance of an

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obligation imposed by, or in consequence of the

exercise of an option acquired under, that agreement

or any related agreement, or

                           (ii)                         acquires an option to buy them back under that

agreement or any related agreement which he

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subsequently exercises.”.

  9        In paragraph 12(4) of Schedule 7AC to the Taxation of Chargeable Gains Act

1992 (c. 12) (exemptions for disposals by companies with substantial

shareholding: effect of repurchase agreement), for paragraph (b)

substitute—

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                    “(b)                      the original owner or a person connected with him—

                           (i)                          is required to buy them back in pursuance of an

obligation imposed by, or in consequence of the

exercise of an option acquired under, that agreement

or any related agreement, or

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                           (ii)                         acquires an option to buy them back under that

agreement or any related agreement which he

subsequently exercises.”.

Option premium to be reflected in sale price unless brought into account under derivative

contracts provisions

30

  10       In section 730A of the Taxes Act 1988 (treatment of price differential on sale

and repurchase of securities), after subsection (8) insert—

              “(8A)                In this section references to the sale price are to be construed—

                    (a)                   in a case where the securities are bought back by the

transferor or a person connected with him in compliance

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with a requirement imposed in consequence of the exercise of

an option acquired under the agreement to sell the securities

or any related agreement, as references to what would

otherwise be the sale price plus the amount of any

consideration given for the option, and

40

                    (b)                   in a case where the securities are so bought back in the

exercise of an option so acquired, as references to what would

otherwise be the sale price less the amount of any

consideration so given,

                              unless the consideration is brought into account under Schedule 26

45

to the Finance Act 2002 (derivative contracts).”.

 

 

Finance Bill
Schedule 38 — Sale and repurchase of securities etc

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Exchange gains and losses

  11      (1)                        Section 730A of the Taxes Act 1988 (treatment of price differential on sale

and repurchase of securities) is amended as follows.

          (2)      In subsection (4) (adjustment of repurchase price) for “this section and

sections 737A and 737C” substitute “the excepted provisions specified in

5

subsection (4A) below”.

          (3)               At the end of that subsection add as a second sentence—

                              “This subsection is subject to subsection (4B) below.”.

          (4)               After that subsection insert—

              “(4A)                The excepted provisions are—

10

                    (a)                   this section,

                    (b)                   section 730BB, apart from subsection (7),

                    (c)                   section 737A, and

                    (d)                   section 737C.

              (4B)                Where section 730BB(7) has effect (repurchase price to be treated as

15

increased or reduced for certain purposes), subsection (4) above does

not have effect for any purpose other than that of determining the

amount that falls to be increased or reduced under section

730BB(7).”.

  12       After section 730B of the Taxes Act 1988 insert—

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       “730BB  Exchange gains and losses on sale and repurchase of securities

              (1)             For the purposes of the Corporation Tax Acts, a company has a

relationship to which this section applies in any case where—

                    (a)                   the circumstances are as set out in section 730A(1)(a) and (b);

                    (b)                   the company is the repurchaser of the securities or (subject to

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subsection (11) below) the interim holder;

                    (c)                   the conditions in subsection (2) or (3) below are satisfied; and

                    (d)                   subsection (10) below does not prevent this section from

applying,

                              and references to a relationship to which this section applies, and to

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a company’s being a party to such a relationship, shall be construed

accordingly.

              (2)             The conditions in this subsection are that—

                    (a)                   the sale price and the repurchase price are expressed in a

currency other than sterling;

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                    (b)                   there is a difference between—

                           (i)                          the sterling equivalent of the sale price as at the date

of the transfer of the securities to the interim holder

(“the first sum”); and

                           (ii)                         the sterling equivalent of the sale price as at the date

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they are bought back by the repurchaser (“the second

sum”); and

                    (c)                   the case is not one where section 93 of the Finance Act 1993

(accounts of a company in a currency other than sterling)

applies in relation to the company.

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Finance Bill
Schedule 38 — Sale and repurchase of securities etc

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              (3)             The conditions in this subsection are that—

                    (a)                   the case is one where section 93 of the Finance Act 1993

applies in relation to the company;

                    (b)                   the sale price and the repurchase price are expressed in a

currency other than the relevant foreign currency (within the

5

meaning of that section) in relation to the company; and

                    (c)                   there is a difference between—

                           (i)                          the relevant foreign currency equivalent of the sale

price as at the date of the transfer of the securities to

the interim holder (“the first sum”); and

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                           (ii)                         the relevant foreign currency equivalent of the sale

price as at the date they are bought back by the

repurchaser (“the second sum”).

              (4)             Where a company has a relationship to which this section applies

and—

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                    (a)                   the company is the repurchaser and the first sum exceeds the

second sum; or

                    (b)                   the company is the interim holder and the second sum

exceeds the first sum,

                              the amount of the excess shall be treated for the purposes of the

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Corporation Tax Acts as an exchange gain (within the meaning of

Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships))

arising to the company from the relationship.

              (5)             Where a company has a relationship to which this section applies

and—

25

                    (a)                   the company is the repurchaser and the second sum exceeds

the first sum; or

                    (b)                   the company is the interim holder and the first sum exceeds

the second sum,

                              the amount of the excess shall be treated for the purposes of the

30

Corporation Tax Acts as an exchange loss (within the meaning of

Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships))

arising to the company from the relationship.

              (6)             Where an exchange gain or loss is treated by virtue of subsection (4)

or (5) above as arising to a company from a relationship to which this

35

section applies—

                    (a)                   Chapter 2 of Part 4 of the Finance Act 1996 shall have effect in

relation to the exchange gain or loss as it would have effect if

it were an exchange gain or loss (as the case may be) arising

to the company from a loan relationship to which it is a party;

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but

                    (b)                   the only debits and credits to be brought into account for the

purposes of that Chapter by virtue of this section in respect of

the relationship to which this section applies are those

relating to the exchange gains and losses,

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                              and, subject to paragraph (b) above, references in the Corporation

Tax Acts to a loan relationship accordingly include a reference to a

relationship to which this section applies.

 

 

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Schedule 38 — Sale and repurchase of securities etc

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              (7)             Where a company has a relationship to which this section applies,

the repurchase price shall be treated for the purposes of the Tax Acts

(other than this section and sections 730A, 737A and 737C) and (in

cases where section 263A of the 1992 Act does not apply) for the

purposes of the 1992 Act—

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                    (a)                   in a case where an exchange gain arises to the company by

virtue of subsection (4)(a) above or an exchange loss arises to

the company by virtue of subsection (5)(b) above, as

increased by the amount by which the first sum exceeds the

second sum, and

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                    (b)                   in a case where an exchange gain arises to the company by

virtue of subsection (4)(b) above or an exchange loss arises to

the company by virtue of subsection (5)(a) above, as reduced

by the amount by which the second sum exceeds the first

sum.

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              (8)             Any question whether debits or credits brought into account in

accordance with subsection (6) above in relation to any company—

                    (a)                   are to be brought into account under section 82(2) of the

Finance Act 1996 (trading loan relationships); or

                    (b)                   are to be treated as non-trading debits or credits,

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                              shall be determined (subject to Schedule 11 to that Act (insurance

companies)) according to the extent (if any) to which the company is

a party to the repurchase in the course of activities forming an

integral part of a trade carried on by that company.

              (9)             To the extent that debits or credits fall to be brought into account by

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a company under section 82(2) of that Act in the case of a relationship

to which this section applies, the company shall be regarded for the

purposes of Chapter 2 of Part 4 of the Finance Act 1996 as being a

party to the relationship for the purposes of a trade carried on by the

company.

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              (10)            Except where regulations under section 737E otherwise provide, this

section does not apply if—

                    (a)                   the agreement or agreements under which provision is made

for the sale and repurchase are not such as would be entered

into by persons dealing with each other at arm’s length; or

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                    (b)                   all of the benefits and risks arising from fluctuations, before

the repurchase takes place, in the market value of the

securities sold accrue to, or fall on, the interim holder.

              (11)            Where—

                    (a)                   the repurchase price is more than the sale price, so that by

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virtue of section 730A(2)(a) a payment of interest is treated as

made by the repurchaser on a deemed loan from the interim

holder; but

                    (b)                   the payment of interest is treated as made to a person other

than the interim holder,

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                              references to the “interim holder” in subsections (1), (4) and (5) above

shall be read as references to the person to whom the payment of

interest is treated as made.

 

 

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Schedule 38 — Sale and repurchase of securities etc

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              (12)            Any reference in this section to the “relevant foreign currency

equivalent” of an amount is, in the case of any company, a reference

to the amount’s equivalent expressed in the relevant foreign

currency (within the meaning of section 93 of the Finance Act 1993)

in relation to the company.

5

              (13)            Expressions used in this section and in section 730A have the same

meaning in this section as in that section.”.

  13      (1)      Section 737E of the Taxes Act 1988 (power to modify sections 727A, 730A

and 737A to 737C) is amended as follows.

          (2)      In subsections (1) and (2), after “730A” insert “, 730BB”.

10

          (3)      In subsection (3), after “730A” insert “or 730BB”.

          (4)      In consequence of the amendments made by this paragraph, the sidenote

becomes “Power to modify sections 727A, 730A, 730BB and 737A to 737C”.

  14       In section 100 of the Finance Act 1996 (c. 8) (exchange gains and losses on

debts etc not arising from the lending of money), after subsection (2) insert—

15

              “(2A)                Where—

                    (a)                   a company has a relationship to which section 730BB of the

Taxes Act 1988 applies (exchange gains and losses on sale

and repurchase of securities),

                    (b)                   in the case of that relationship the circumstances mentioned

20

in section 730A(1)(b) of that Act are such as to give rise to a

money debt, and

                    (c)                                         the company stands, or has stood, in the position of a creditor

or debtor as respects that money debt,

                              the company shall not be regarded for the purposes of the

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Corporation Tax Acts as having, by reason of that money debt, a

relationship to which this section applies, so far as relating to

exchange gains and losses.”.

Exceptions

  15       In section 727A(1) of the Taxes Act 1988 (accrued income scheme not to

30

apply to transfers of securities under repo agreements), insert at the end

“except in a case where section 730A of the Taxes Act 1988 is prevented from

applying by subsection (8) of that section.”.

  16       In section 730A(8)(b) of the Taxes Act 1988 (treatment of price differential on

sale and repurchase: exclusion of cases where all benefits or risks are for

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interim holder), for “benefits or risks” substitute “benefits and risks”.

  17       In section 737C(11A) of the Taxes Act 1988 (purposes for which deemed

increase of repurchase price has effect), insert at the end “or where that

section is prevented from applying by subsection (8) of that section.”.

  18      (1)      Paragraph 15 of Schedule 9 to the Finance Act 1996 (c. 8) (repo transactions

40

not related transactions for purposes of loan relationship provisions) is

amended as follows.

          (2)      In sub-paragraph (3), after “means” insert “(subject to sub-paragraph (3A))”.

 

 

 
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