Finance Bill

House of Commons

Session 2006 - 07
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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

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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.

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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

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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

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Schedule 13 — Sale and repurchase of securities
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(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

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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