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Income Tax Bill


Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 5 — Price differences under repos

317

 

(6)   

Subsection (7) applies in calculating the sale price for the purposes of this

section if the repo involves the exercise of an option (see section 569(4)(b) and

(c)).

(7)   

The amount of any consideration given for the option is—

(a)   

in a case falling within section 569(4)(b), added to what would

5

otherwise be the price, and

(b)   

in a case falling within section 569(4)(c), subtracted from what would

otherwise be the price.

(8)   

This section is subject to section 608 (exceptions) and Chapter 6 (powers to

modify repo provisions: non-standard repo cases and redemption

10

arrangements).

608     

Exceptions to section 607

(1)   

Section 607 does not apply in a case within subsection (2) or (3).

(2)   

A case is within this subsection if the agreement or agreements for sale and

repurchase are not what one would expect of persons dealing at arm’s length.

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(3)   

A case is within this subsection if the interim holder has all the benefits and

risks from fluctuations in the market value of the securities between their sale

and repurchase.

(4)   

This section is subject to any regulations under—

(a)   

section 611 (power to modify Chapter 5 in non-arm’s length case), and

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(b)   

sections 612 to 614 (powers to modify repo provisions: non-standard

repo cases and redemption arrangements).

Additional tax treatment

609     

Additional income tax consequences of price differences

(1)   

Subsections (2) and (3) apply if an amount is treated under section 607 as a

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payment of interest.

(2)   

If the repurchase price is more than the sale price, the repurchase price is

treated for other income tax purposes as reduced by the amount of the

payment of interest.

(3)   

If the sale price is more than the repurchase price, the repurchase price is

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treated for other income tax purposes as increased by the amount of the

payment of interest.

(4)   

“Other income tax purposes” means income tax purposes other than the

purposes of—

(a)   

sections 601 to 605 (deemed manufactured payments: repos), and

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(b)   

this Chapter.

(5)   

The Treasury may by regulations provide for any amount which is treated

under section 607 as received as a payment of interest to be treated, in such

circumstances and so far as may be described in the regulations, as exempt

pension income.

40

 
 

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 6 — Powers to modify repo provisions

318

 

(6)   

“Exempt pension income” means income which is eligible for relief from

income tax as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section

186 of FA 2004 (exemptions about pensions and annuities).

(7)   

Section 261G of TCGA 1992 deals with the effect on the repurchase price for

capital gains tax purposes of an amount being treated under section 607 as a

5

payment of interest.

Interpretation

610     

Repurchase price in deemed manufactured payment case

(1)   

This section applies if section 602 (deemed manufactured payments: repos)

applies to a case in which section 607 applies.

10

(2)   

References in sections 607 to 609 to the repurchase price are to be read as

references to the repurchase price which is applicable as a result of section

604(2), (4) or (5).

Power to modify

611     

Power to modify Chapter in non-arm’s length case

15

(1)   

The Treasury may by regulations provide for—

(a)   

sections 607 to 610 (price differences under repos), or

(b)   

any of those sections,

   

to apply with modifications if the exception in section 608(2) (agreement not at

arm’s length) would otherwise prevent section 607 from applying.

20

(2)   

Regulations under this section may make different provision for different

cases.

(3)   

Regulations under this section may contain incidental, supplemental,

consequential and transitional provision and savings.

(4)   

The incidental, supplemental and consequential provision may include

25

modifications of—

(a)   

section 604 (deemed increase in repurchase price: price differences

under repos), and

(b)   

section 605 (deemed increase in repurchase price: other income tax

purposes).

30

(5)   

In this section “modifications” includes exceptions and omissions.

(6)   

Accordingly, the power in subsection (1) includes power to provide for any of

sections 607 to 610 not to apply in relation to the case mentioned in that

subsection.

Chapter 6

35

Powers to modify repo provisions

612     

Non-standard repo cases

(1)   

The Treasury may by regulations provide for—

 
 

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 6 — Powers to modify repo provisions

319

 

(a)   

sections 601 to 606 (deemed manufactured payments: repos),

(b)   

sections 607 to 610 (treatment of price differences under repos), or

(c)   

any of those sections,

   

to apply with modifications in relation to non-standard repo cases.

(2)   

A case is a non-standard repo case if—

5

(a)   

there is a repo in respect of securities,

(b)   

under the repo, there has been a sale (“the original sale”) of the

securities by the original owner to the interim holder, and

(c)   

any of conditions A to E is met in relation to the repo.

(3)   

Condition A is that—

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(a)   

the obligation to buy back the securities is not performed, or

(b)   

the option to buy them back is not exercised.

(4)   

Condition B is that provision is made by or under an agreement for different or

additional UK shares, UK securities or overseas securities to be treated as (or

as included with) representative securities.

15

(5)   

Condition C is that provision is made by or under an agreement for any UK

shares, UK securities or overseas securities to be treated as not included with

representative securities.

(6)   

Condition D is that provision is made by or under an agreement for the sale

price or repurchase price to be decided or varied wholly or partly by reference

20

to post-agreement fluctuations.

(7)   

Condition E is that provision is made by or under an agreement for a person to

be required, in a case where there are post-agreement fluctuations, to make a

payment in the period—

(a)   

beginning immediately after the making of the agreement for the

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original sale, and

(b)   

ending when the repurchase price becomes due.

(8)   

“Post-agreement fluctuations” are fluctuations in the value of —

(a)   

securities transferred in pursuance of the original sale, or

(b)   

representative securities,

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which occur in the period after the making of the agreement for the original

sale.

(9)   

“Representative securities” are UK shares, UK securities or overseas securities

which, for the purposes of the repurchase, are to represent securities

transferred in pursuance of the original sale.

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613     

Redemption arrangements

(1)   

The Treasury may by regulations provide for—

(a)   

sections 601 to 606 (deemed manufactured payments: repos),

(b)   

sections 607 to 610 (treatment of price differences under repos), or

(c)   

any of those sections,

40

   

to apply with modifications in relation to cases involving redemption

arrangements.

(2)   

A case involves redemption arrangements if—

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities

320

 

(a)   

arrangements, corresponding to those made in cases where there is a

repo, are made by an agreement, or one or more related agreements, in

relation to securities that are to be redeemed in the period after their

sale,

(b)   

the securities are UK shares, UK securities or overseas securities, and

5

(c)   

the arrangements are such that the seller or a person connected with the

seller (instead of being required to repurchase the securities or

acquiring an option to do so) is granted rights in respect of the benefits

that will result from the redemption.

614     

Sections 612 and 613: supplementary

10

(1)   

Regulations under section 612 or 613 may make different provision for

different cases.

(2)   

Regulations under either section may contain incidental, supplemental,

consequential and transitional provision and savings.

(3)   

The incidental, supplemental and consequential provision may, in the case of

15

regulations about sections 607 to 610, include modifications of—

(a)   

section 604 (deemed increase in repurchase price: price differences

under repos), and

(b)   

section 605 (deemed increase in repurchase price: other income tax

purposes).

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(4)   

In this section and sections 612 and 613 “modifications” includes exceptions

and omissions.

(5)   

Accordingly, a power in sections 612 and 613 to provide for a provision to

apply with modifications in relation to a particular case includes power to

provide for the provision not to apply in relation to that case.

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Part 12

Tax avoidance

Chapter 1

Transactions in securities

Introduction

30

615     

Overview of Chapter

(1)   

This Chapter makes provision for counteracting income tax advantages

obtained or obtainable by persons to whom section 617 applies in respect of a

transaction or transactions in securities.

(2)   

See section 631 (counteraction notices) for the way in which the income tax

35

advantages may be counteracted.

616     

Meaning of “income tax advantage”

(1)   

In this Chapter “income tax advantage” means—

(a)   

a relief from income tax or increased relief from income tax,

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities

321

 

(b)   

a repayment of income tax or increased repayment of income tax,

(c)   

the avoidance or reduction of a charge to income tax or an assessment

to income tax, or

(d)   

the avoidance of a possible assessment to income tax.

(2)   

For the purposes of subsection (1)(c) and (d) it does not matter whether the

5

avoidance or reduction is effected—

(a)   

by receipts accruing in such a way that the recipient does not pay or

bear income tax on them, or

(b)   

by a deduction in calculating profits or gains.

(3)   

In this section “relief from income tax” includes a tax credit.

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Person liable to counteraction of income tax advantages

617     

Person liable to counteraction of income tax advantage

(1)   

This section applies to a person in respect of a transaction in securities or two

or more such transactions if the person is in a position to obtain or has obtained

an income tax advantage—

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(a)   

in circumstances where any of the provisions specified in subsection (2)

applies in relation to the person, and

(b)   

in consequence of—

(i)   

the transaction, or

(ii)   

the combined effect of the transactions.

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(2)   

The provisions are—

section 619 (abnormal dividends used for exemptions or reliefs

(circumstance A)),

section 620 (deductions from profits obtained following distribution or

dealings (circumstance B)),

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section 621 (receipt of consideration representing company’s assets,

future receipts or trading stock (circumstance C)),

section 622 (receipt of consideration in connection with relevant company

distribution (circumstance D)), and

section 623 (receipt of assets of relevant company (circumstance E)).

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(3)   

For the purposes of this Chapter an income tax advantage is treated as obtained

or obtainable by a person in consequence of—

(a)   

a transaction in securities, or

(b)   

the combined effect of two or more such transactions,

   

if it is obtained or obtainable by the person in consequence of the combined

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effect of the transaction or transactions and the liquidation of a company.

(4)   

This section is subject to—

section 618 (exception where no tax avoidance object shown),

section 629(3) (disapplication of this section where person receiving

preliminary notification that this section may apply makes a statutory

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declaration and the relevant officer of Revenue and Customs sees no

reason to take further action), and

section 630(5) (determination by tribunal that there is no prima facie case

that this section applies).

 
 

 
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