House of Commons portcullis
House of Commons
Session 2006 - 07
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 13 — Sale and repurchase of securities

182

 

      (3)  

Condition B is that, in accordance with generally accepted accounting

practice, the accounts of the lender for the period in which the advance is

made record a financial asset in respect of the advance.

      (4)  

Condition C is that under the arrangement the borrower sells any securities

at any time to the lender.

5

      (5)  

Condition D is that the arrangement makes provision conferring a right or

imposing an obligation on the lender to sell those or similar securities at any

subsequent time.

      (6)  

Condition E is that, in accordance with generally accepted accounting

practice, the subsequent sale of those or similar securities would extinguish

10

the financial asset in respect of the advance recorded in the accounts of the

lender.

      (7)  

For the purposes of conditions A to E references to the lender include a

partnership of which the lender is a member.

Meaning of creditor quasi-repo

15

8     (1)  

For the purposes of this Schedule a company (“the lender”) has a creditor

quasi-repo in any case if—

(a)   

the lender does not have a creditor repo in that case, and

(b)   

conditions A to E are met in that case.

      (2)  

Condition A is that under an arrangement another person receives from the

20

lender any money or other asset (“the advance”).

      (3)  

Condition B is that, in accordance with generally accepted accounting

practice, the accounts of the lender for the period in which the advance is

made record a financial asset in respect of the advance.

      (4)  

Condition C is that under that or any other arrangement a person sells any

25

securities at any time to the lender or any other person.

      (5)  

Condition D is that the arrangement or other arrangement—

(a)   

makes provision conferring a right or imposing an obligation on the

lender to sell the securities or any other securities at any subsequent

time, or

30

(b)   

makes provision conferring such a right or imposing such an

obligation on any other person and makes other relevant provision.

      (6)  

For this purpose any arrangement makes “other relevant provision” if it

makes provision—

(a)   

for the receipt of any money, securities or other asset from the lender

35

under that arrangement for the purpose of enabling the other person

to make that subsequent sale, or

(b)   

for the discharge of any liability to the lender under that

arrangement for that purpose (whether by way of set off or

otherwise).

40

      (7)  

Condition E is that, in accordance with generally accepted accounting

practice—

(a)   

the subsequent sale of the securities or the other securities by the

lender, or

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

183

 

(b)   

the receipt of the asset from the lender, or the discharge of the

liability to the lender, under the arrangement or other arrangement,

           

would extinguish the financial asset in respect of the advance recorded in

the accounts of the lender.

      (8)  

For the purposes of conditions A to E references to the lender include a

5

partnership of which the lender is a member.

Ignoring effect on lender of sale of securities: creditor repos and creditor quasi-repos

9     (1)  

This paragraph applies if a company (“the lender”) has a creditor repo or a

creditor quasi-repo.

      (2)  

For the purposes of the charge to corporation tax in respect of income of the

10

lender arising while the arrangement is in force, the Corporation Tax Acts

have effect as if—

(a)   

the lender did not hold the securities that are initially sold for any

period for which the arrangement is in force, and

(b)   

the lender did not make in that period any payment representative

15

of income payable in respect of those securities.

      (3)  

But—

(a)   

an amount is not to be ignored for the purposes of that charge as a

result of sub-paragraph (2)(a) if it is, in accordance with generally

accepted accounting practice, recognised in determining the lender’s

20

profit or loss for that period or taken into account in calculating the

amounts which are so recognised, and

(b)   

a payment is not to be ignored for those purposes as a result of sub-

paragraph (2)(b) if the payment is, in accordance with that practice,

so recognised.

25

      (4)  

Nothing in sub-paragraph (3)(b) affects the question whether (apart from

that provision) the payment (or any part of it) may be deducted in

calculating any income for corporation tax purposes or against total profits.

Charge on lender for finance return in respect of the advance: creditor repos and creditor quasi-

repos

30

10    (1)  

This paragraph applies if a company (“the lender”) has a creditor repo or a

creditor quasi-repo.

      (2)  

The advance under the creditor repo or creditor quasi-repo is, in the case of

the lender, to be treated for the purposes of the loan relationship rules as a

money debt which—

35

(a)   

is owed to the lender or, if the lender is a member of a partnership

which makes the advance, to the partnership, and

(b)   

is owed by the person who initially sold the securities.

      (3)  

The arrangement is, in the case of the lender, to be treated for the purposes

of those rules as a transaction for the lending of money from which that debt

40

is treated as arising for those purposes.

      (4)  

Any amount which, in accordance with generally accepted accounting

practice, is recorded in—

(a)   

the accounts of the lender, or

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

184

 

(b)   

if the lender is a member of a partnership which makes the advance,

the accounts of the partnership,

           

as a finance return in respect of the advance is to be treated for those

purposes as interest receivable under that debt.

      (5)  

That interest is to be treated for those purposes as received at the earlier of—

5

(a)   

the time when the relevant repurchase takes place, and

(b)   

the time when it becomes apparent that that repurchase will not take

place.

      (6)  

For this purpose “the relevant repurchase” means—

(a)   

if the lender has a creditor repo, the subsequent sale of the securities

10

or similar securities, and

(b)   

if the lender has a creditor quasi-repo, the subsequent sale of the

securities or other securities by the lender, the receipt of the asset

from the lender or (as the case may be) the discharge of the liability

to the lender.

15

Ignoring purchase and subsequent sale for purposes of chargeable gains: creditor repos

11    (1)  

This paragraph applies if—

(a)   

a company (“the lender”) has a creditor repo, and

(b)   

the lender (having bought the securities under the arrangement from

the borrower) is the only person with the right or obligation under

20

the arrangement to sell those or similar securities at any subsequent

time.

      (2)  

The purchase of the securities, and the subsequent sale of those or similar

securities, by the lender under the arrangement are to be ignored for the

purposes of corporation tax in respect of chargeable gains (but see sub-

25

paragraph (5)).

      (3)  

If at any time after the initial purchase of the securities—

(a)   

it becomes apparent that the lender will not subsequently sell those

or similar securities under the arrangement, or

(b)   

the accounting condition ceases to be met,

30

           

the lender is to be treated for the purposes of corporation tax in respect of

chargeable gains as acquiring the securities at that time for a consideration

equal to their market value at that time.

      (4)  

The accounting condition ceases to be met if, in accordance with generally

accepted accounting practice, the accounts of the lender for any period after

35

the one in which the advance is made do not record a financial asset in

respect of the advance (except as a result of the subsequent sale of the

securities or similar securities).

      (5)  

If sub-paragraph (3) applies because the accounting condition ceases to be

met, any subsequent sale of those or similar securities by the lender under

40

the arrangement is not to be ignored for the purposes of corporation tax in

respect of chargeable gains as a result of this paragraph.

      (6)  

For the purposes of this paragraph references to the lender include a

partnership of which the lender is a member.

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

185

 

Repo under arrangement designed to produce quasi-interest: anti-avoidance

12    (1)  

This paragraph applies if—

(a)   

under an arrangement a person receives any money or other asset

(“the advance”) from a company (or a partnership of which the

company is a member),

5

(b)   

the company does not have a creditor repo or creditor quasi-repo by

reference to the arrangement but would have one on the applicable

accounting assumption (reading condition E in paragraphs 7 and 8

in the light of that assumption),

(c)   

the arrangement is designed to produce a return (“the quasi-

10

interest”) to the company (or partnership of which it is a member)

which equates, in substance, to the return on an investment of money

at interest, and

(d)   

the main purpose, or one of the main purposes, of the arrangement

is the obtaining of a tax advantage.

15

      (2)  

Paragraph 10 is to have effect as if—

(a)   

the company had a creditor repo by reference to the arrangement,

and

(b)   

the quasi-interest were an amount recorded as mentioned in sub-

paragraph (4) of that paragraph.

20

      (3)  

In this paragraph “the applicable accounting assumption” is the assumption

that, in accordance with generally accepted accounting practice, the

accounts of the company (or the partnership of which it is a member) for the

period in which the advance is made record a financial asset in respect of the

advance.

25

Requirements to deduct tax from manufactured payments: creditor repos and debtor repos

13    (1)  

If a company has a creditor repo, Chapter 9 of Part 15 of ITA 2007 (deduction

of income tax at source: manufactured payments) has effect in relation to the

lender while the arrangement is in force as if—

(a)   

the lender paid the borrower amounts which are representative of

30

the income payable on the securities that are initially sold,

(b)   

the payments were made under requirements of the arrangement,

and

(c)   

the payments were made on the dates on which the income is

payable.

35

      (2)  

If a company has a debtor repo, the reverse charge provisions of Chapter 9

of Part 15 of ITA 2007 have effect in relation to the borrower while the

arrangement is in force as if—

(a)   

the lender paid the borrower amounts which are representative of

the income payable on the securities that are initially sold,

40

(b)   

the payments were made under requirements of the arrangements,

and

(c)   

the payments were made on the dates on which the income is

payable.

      (3)  

If sub-paragraph (1) or (2) applies, any payment actually made under an

45

arrangement which is representative of any income payable on any

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

186

 

securities is to be treated for the purposes of Chapter 9 of Part 15 of ITA 2007

as if it had not been made.

      (4)  

In this paragraph “the reverse charge provisions of Chapter 9 of Part 15 of

ITA 2007” means—

(a)   

regulations under section 918(4) of ITA 2007 (manufactured

5

dividends on UK shares (Real Estate Investment Trusts): the reverse

charge),

(b)   

section 920 of that Act (foreign payers of manufactured interest: the

reverse charge), and

(c)   

section 923 of that Act (foreign payers of manufactured overseas

10

dividends: the reverse charge).

Interpretation etc

14    (1)  

In this Schedule—

“arrangement” includes any agreement or understanding (whether or

not legally enforceable),

15

“creditor quasi-repo” has the meaning given by paragraph 8,

“creditor repo” has the meaning given by paragraph 7,

“debtor quasi-repo” has the meaning given by paragraph 3,

“debtor repo” has the meaning given by paragraph 2,

“discharge”, in relation to a liability, means the discharge of the liability

20

in whole or in part (and “discharged” is to be read accordingly),

“the loan relationship rules” means the provisions of Chapter 2 of Part

4 of FA 1996,

“market value” has the same meaning as in TCGA 1992,

“overseas dividend”, in relation to overseas securities, means any

25

interest, dividend or other annual payment payable in respect of the

securities,

“overseas securities” means shares, stock or other securities issued by—

(a)   

a government or public or local authority of a territory

outside the United Kingdom, or

30

(b)   

any other body of persons not resident in the United

Kingdom,

“securities” (except in the definition of “overseas securities”) means

shares, stock or other securities issued by—

(a)   

the government of the United Kingdom,

35

(b)   

any public or local authority in the United Kingdom, or

(c)   

any company or other body resident in the United Kingdom,

or overseas securities, and

“tax advantage” has the meaning given by section 840ZA of ICTA.

      (2)  

For the purposes of this Schedule references to a person’s receiving any asset

40

include the person’s obtaining directly or indirectly the value of any asset or

otherwise deriving directly or indirectly any benefit from it.

      (3)  

For the purposes of this Schedule—

(a)   

in any case where a person buys securities (or has a right or

obligation to buy securities) but the securities are (or are to be) held

45

for another person’s benefit, that other person is treated as buying

(or having the right or obligation to buy) the securities, and

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

187

 

(b)   

in any case where a person sells securities but the proceeds of the sale

are held for another person’s benefit, that other person is treated as

selling the securities.

      (4)  

For the purposes of this Schedule securities are similar if they entitle their

holders to—

5

(a)   

the same rights against the same persons as to capital, interest and

dividends, and

(b)   

the same remedies for the enforcement of those rights,

           

in spite of any difference in the total nominal amounts of the respective

securities or in the form in which they are held or the manner in which they

10

can be transferred.

      (5)  

For the purposes of this Schedule it does not matter whether or not provision

of any arrangement conferring a right or imposing an obligation on any

person to buy any securities is subject to any conditions.

      (6)  

For the purposes of this Schedule an arrangement is in force from the time

15

when the securities are initially sold until the earlier of—

(a)   

the time when the relevant repurchase takes place, and

(b)   

the time when it becomes apparent that that repurchase will not take

place.

      (7)  

For this purpose “the relevant repurchase” means—

20

(a)   

in the case of a debtor repo, the subsequent buying of the securities

or similar securities,

(b)   

in the case of a debtor quasi-repo, the subsequent buying of the

securities or other securities by the borrower, the receipt of the asset

from the borrower or (as the case may be) the discharge of the

25

liability to the borrower,

(c)   

in the case of a creditor repo, the subsequent sale of the securities or

similar securities, and

(d)   

in the case of a creditor quasi-repo, the subsequent sale of the

securities or other securities by the lender, the receipt of the asset

30

from the lender or (as the case may be) the discharge of the liability

to the lender.

      (8)  

Any reference in this Schedule to an amount being recognised in

determining a company’s profit or loss for a period is to an amount being

recognised for accounting purposes—

35

(a)   

in the company’s profit and loss account or income statement,

(b)   

in the company’s statement of recognised gains and losses or

statement of changes in equity, or

(c)   

in any other statement of items brought into account in calculating

the company’s profits and losses for that period.

40

      (9)  

In determining for the purposes of this Schedule whether an amount is

recorded as a financial asset or liability in respect of the advance it is to be

assumed that the period of account in which the advance is received or made

ended immediately after the receipt or making of the advance.

     (10)  

For the purposes of paragraphs 6(4) and 11(4)—

45

(a)   

any period of account in which the advance is received or made is

treated as if it ended immediately after the receipt or making of the

advance, and

 

 

Finance Bill
Schedule 13 — Sale and repurchase of securities

188

 

(b)   

a new period of account is treated as beginning immediately after the

end of that period.

     (11)  

If any person does not draw up accounts in accordance with generally

accepted accounting practice, this Schedule applies as if the accounts had

been drawn up by the person in accordance with that practice.

5

Power to modify Schedule

15    (1)  

The Treasury may by regulations provide for all or any of the provisions of

this Schedule to apply with modifications in relation to either or both of the

following cases—

(a)   

non-standard repo cases (see sub-paragraphs (2) to (5)), and

10

(b)   

cases involving redemption arrangements (see sub-paragraph (6)).

      (2)  

A case is a non-standard repo case if—

(a)   

a company has a repo,

(b)   

there has been a sale of the securities under the arrangement or

arrangements by reference to which the company has the repo, and

15

(c)   

any of conditions A to C are met in relation to the repo.

      (3)  

Condition A is that those securities, or similar or other securities, are not

subsequently bought under the arrangement or arrangements.

      (4)  

Condition B is that provision is made by or under an arrangement for

different or additional securities to be treated as, or as included with,

20

securities which, for the purposes of the subsequent purchase, are to

represent those initially sold.

      (5)  

Condition C is that provision is made by or under an arrangement for

securities to be treated as not so included.

      (6)  

A case involves redemption arrangements if—

25

(a)   

arrangements, corresponding to those made in cases where a

company has a repo, are made in relation to securities that are to be

redeemed in the period after their sale, and

(b)   

the arrangements are such that a person (instead of having the right

or obligation to buy those securities, or similar or other securities, at

30

any subsequent time) has a right or obligation in respect of the

benefits that will result from the redemption.

      (7)  

The regulations may—

(a)   

make different provision for different cases, and

(b)   

contain incidental, supplemental, consequential and transitional

35

provision and savings.

      (8)  

Regulations about paragraph 6 or 11 may, in particular, include

modifications of TCGA 1992 in relation to cases where, as a result of the

regulations, any acquisition or disposal is excluded from those which are to

be ignored for the purposes of corporation tax in respect of chargeable gains.

40

      (9)  

In this paragraph—

“modifications” include exceptions and omissions, and

“repo” means—

(a)   

a debtor repo or debtor quasi-repo, or

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2007
Revised 28 March 2007