Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 13 — Sale and repurchase of securities
188

from the borrower or (as the case may be) the discharge of the
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
5
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.
      (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
10
recognised for accounting purposes—
(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
15
the company’s profits and losses for that period.
      (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.
20
     (10)
For the purposes of paragraphs 6(4) and 11(4)—
(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
(b)
a new period of account is treated as beginning immediately after the
25
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.
Power to modify Schedule
30
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
(b)
cases involving redemption arrangements (see sub-paragraph (6)).
35
      (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
(c)
any of conditions A to C are met in relation to the repo.
40
      (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,
securities which, for the purposes of the subsequent purchase, are to
45
represent those initially sold.

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
189

      (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—
(a)
arrangements, corresponding to those made in cases where a
company has a repo, are made in relation to securities that are to be
5
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
any subsequent time) has a right or obligation in respect of the
benefits that will result from the redemption.
10
      (7)
The regulations may—
(a)
make different provision for different cases, and
(b)
contain incidental, supplemental, consequential and transitional
provision and savings.
      (8)
Regulations about paragraph 6 or 11 may, in particular, include
15
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.
      (9)
In this paragraph—
“modifications” include exceptions and omissions, and
20
“repo” means—
(a)
a debtor repo or debtor quasi-repo, or
(b)
a creditor repo or creditor quasi-repo (including anything
treated, as a result of paragraph 12, as a creditor repo for the
purposes of paragraph 10).
25
Schedule 14
Section 46

Sale and repurchase of securities: minor and consequential amendments
Income and Corporation Taxes Act 1988 (c. 1)
1
ICTA is amended as follows.
2     (1)
Section 231AA (no tax credit for borrower under stock lending arrangement
30
or interim holder under repurchase agreement) is amended as follows.
      (2)
In subsection (1)—
(a)
for “the interim holder under a repurchase agreement” substitute
“the lender under a creditor repo or creditor quasi-repo”, and
(b)
for “or agreement” (in both places) substitute “or repo in question”.
35
      (3)
For subsection (3) substitute—
“(3)
In this section “creditor repo” and “creditor quasi-repo” have the
meaning given by Schedule 13 to the Finance Act 2007.”
      (4)
In subsection (4), omit “or 737A(5)”.

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
190

      (5)
After that subsection insert—
“(5)
For the purposes of this section a person is taken to have paid a
manufactured dividend representative of a distribution in respect of
securities to which a creditor repo relates if (as a result of paragraph
13(1) of Schedule 13 to the Finance Act 2007) the person is treated for
5
the purposes of Chapter 9 of Part 15 of ITA 2007 as making a
payment which is representative of the income payable on the
securities.”
3     (1)
Section 231AB (no tax credit for original owner under repurchase agreement
in respect of certain manufactured dividends) is amended as follows.
10
      (2)
In subsection (1), for paragraphs (a) to (c) substitute—
“(a)
the person is the borrower under a debtor repo or debtor
quasi-repo;
(b)
the qualifying distribution is a manufactured dividend paid
to the borrower in consequence of that repo; and
15
(c)
the arrangement or arrangements in relation to that repo are
not such that the actual dividend which the manufactured
dividend represents is receivable otherwise than by the
borrower under that repo.”
      (3)
For subsection (2) substitute—
20
“(2)
In this section “debtor repo” and “debtor quasi-repo” have the
meaning given by Schedule 13 to the Finance Act 2007.”
4
Omit sections 730A and 730B (treatment of price differential on sale and
repurchase of securities).
5
Omit section 730BB (exchange gains and losses on sale and repurchase of
25
securities).
6     (1)
Section 731 (purchase and sale of securities: application and interpretation
of sections 732 to 734) is amended as follows.
      (2)
In subsection (2A)—
(a)
omit “section 737A(5) below or”, and
30
(b)
after “2007” insert “or paragraph 13(1) of Schedule 13 to the Finance
Act 2007”.
      (3)
For subsection (2F) substitute—
“(2F)
For the purposes of subsections (2B) to (2E) above—
(a)
agreements are related if they are entered into in pursuance
35
of the same arrangement (regardless of the date on which
either agreement is entered into); and
(b)
references to buying back securities include buying similar
securities even if the securities bought have not previously
been held by the purchaser (and references in those
40
subsections to repurchase are to be construed accordingly).
(2G)
For the purposes of subsection (2F) above securities are similar if
they entitle their holders to—
(a)
the same rights against the same persons as to capital, interest
and dividends, and
45
(b)
the same remedies for the enforcement of those rights,

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
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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 can be transferred.”
7
Omit sections 737A to 737C (sale and repurchase of securities: deemed
manufactured payments).
5
8
Omit section 737E (power to modify sections 730A, 730BB and 737A to
737C).
9
In section 774E(4) (exceptions to sections 774B and 774D), for paragraph (b)
(together with the “or” at the end of it) substitute—
“(b)
Schedule 13 to the Finance Act 2007 (sale and repurchase of
10
securities) applies, or”.
10
In section 807A (disposals and acquisitions of company loan relationships
with or without interest), for subsection (6A) substitute—
“(6A)
In this section “repo or stock-lending arrangements” means—
(a)
a debtor repo within the meaning of paragraph 2 of Schedule
15
13 to the Finance Act 2007, or
(b)
a stock lending arrangement within the meaning of section
263B of the 1992 Act.
(6B)
In any case where a debtor repo within the meaning of that
paragraph constitutes the repo or stock-lending arrangements—
20
(a)
a reference in this section, in relation to those arrangements,
to the initial transfer is to the sale mentioned in condition C
of that paragraph; and
(b)
a reference in this section, in relation to those arrangements,
to the period for which they have effect is to the period from
25
the making of the initial transfer until the earlier of the time
when the subsequent purchase mentioned in condition D of
that paragraph takes place and the time when it becomes
apparent that that subsequent purchase will not take place.
(6C)
In any case where a stock lending arrangement within the meaning
30
of section 263B of the 1992 Act constitutes the repo or stock-lending
arrangements—
(a)
a reference in this section, in relation to those arrangements,
to the initial transfer is to the transfer mentioned in
subsection (1)(a) of that section; and
35
(b)
a reference in this section, in relation to those arrangements,
to the period for which they have effect is to the period from
the making of the initial transfer until the earlier of the time
when the transfer mentioned in subsection (1)(b) of that
section takes place and the time when it becomes apparent
40
that that transfer will not take place.”
Taxation of Chargeable Gains Act 1992 (c. 12)
11
TCGA 1992 is amended as follows.
12    (1)
Section 263A (agreements for sale and repurchase of securities) is amended
as follows.
45

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
192

      (2)
In subsection (1), for the words from the beginning to “were different”
substitute “Subject to subsections (3) and (4) below, in any case falling within
section 607(1) of ITA 2007 (treatment of price differences under repos)”.
      (3)
After that subsection insert—
“(1A)
If, at any time after the acquisition mentioned in subsection (1)(a)
5
above, it becomes apparent that the interim holder will not dispose
of the securities to the repurchaser, the interim holder shall be
treated for the purposes of capital gains tax as acquiring them at that
time for a consideration equal to their market value at that time.
(1B)
If, at any time after the disposal mentioned in subsection (1)(b)
10
above, it becomes apparent that the original owner will not acquire
the securities as the repurchaser, the original owner shall be treated
for the purposes of capital gains tax as disposing of them at that time
for a consideration equal to their market value at that time.”
      (4)
Omit subsection (2).
15
      (5)
For subsections (5) and (6) substitute—
“(5)
Expressions used in this section and section 607 of ITA 2007 have the
same meaning in this section as in that section.
(6)
This section does not apply for the purposes of corporation tax in
respect of chargeable gains.”
20
      (6)
The heading accordingly becomes “Agreements for sale and repurchase of
securities: capital gains tax”.
13    (1)
For paragraph 12 of Schedule 7AC substitute—
“12   (1)
This paragraph applies where—
(a)
a company (“the borrower”) which holds shares in another
25
company sells the shares under an arrangement by
reference to which the borrower has a debtor repo, and
(b)
by virtue of paragraph 6 of Schedule 13 to the Finance Act
2007 (sale and repurchase of securities) the sale is ignored
for the purposes of corporation tax in respect of chargeable
30
gains.
      (2)
For the period for which the arrangement is in force—
(a)
the borrower shall be treated for the purposes of this Part
as continuing to hold the shares and accordingly as
retaining its entitlement to any rights attaching to them,
35
and
(b)
the lender shall be treated for those purposes as not
holding the shares and as not becoming entitled to any
such rights.

This is subject to the following qualification.
40
      (3)
If at any time before the end of that period the borrower, or
another member of the same group as the borrower, becomes the
holder—
(a)
of any of the shares, or
(b)
of any shares directly or indirectly representing any of
45
them,

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
193


sub-paragraph (2) does not apply after that time in relation to
those shares or, as the case may be, the shares represented by
them.
      (4)
Expressions used in this paragraph and in Schedule 13 to the
Finance Act 2007 have the same meaning in this paragraph as in
5
that Schedule.”
Finance Act 1996 (c. 8)
14
Chapter 2 of Part 4 of FA 1996 (loan relationships) is amended as follows.
15
In section 91C(3) (shares treated as loan relationships: condition 1 for section
91B(6)(b)), for paragraph (f) substitute—
10
“(f)
rights under a creditor repo within the meaning of paragraph
7 of Schedule 13 to the Finance Act 2007;”.
16    (1)
Section 97 (manufactured interest) is amended as follows.
      (2)
In subsection (4), for “sections 736B(2) and 737A(5) of the Taxes Act 1988 for
cases” substitute “section 736B(2) of the Taxes Act 1988 for a case”.
15
      (3)
After subsection (4A) insert—
“(4B)
This section is subject to Schedule 13 to the Finance Act 2007 (sale
and repurchase of securities).”
17
In section 100 (money debts etc not arising from the lending of money), omit
subsection (2A).
20
18
For paragraph 15 of Schedule 9 (and the italic cross-heading before it)
substitute—
“Repo and stock-lending transactions and other transactions where a company ceases
to be party to a loan relationship
15    (1)
This paragraph applies if—
25
(a)
a company ceases to be a party to a loan relationship in any
period (whether as a result of the disposal of the rights or
liabilities under the relationship under a repo or stock
lending arrangement or otherwise), but
(b)
amounts in respect of the relationship are, in accordance
30
with generally accepted accounting practice, nonetheless
recognised in determining the company’s profit or loss for
that period or any subsequent period.
      (2)
Despite ceasing to be a party to the relationship—
(a)
the company is to bring into account amounts in respect of
35
the relationship for those periods for the purposes of this
Chapter, and
(b)
those amounts are to be those which are so recognised in
respect of the relationship (subject to the provisions of this
Chapter (including, in particular, section 84(1))).
40
      (3)
In relation to any time after the company ceases to be a party to a
loan relationship, any question—

Finance Bill
Schedule 14 — Sale and repurchase of securities: minor and consequential amendments
194

(a)
whether the company is to any extent a party to the
relationship for the purposes of a trade carried on by it or
for any other particular purpose or purposes, or
(b)
whether the relationship is to any extent referrable to a
particular business, or a particular class, category or
5
description of business, carried on by it,

is to be determined by reference to the circumstances immediately
before the company ceased to be a party to the relationship.
      (4)
This paragraph does not apply in relation to any amount in respect
of a loan relationship which is brought into account for the
10
purposes of this Chapter as a result of section 103(6) of this Act or
paragraph 4 of Schedule 13 to the Finance Act 2007 (sale and
repurchase of securities).”
Finance Act 1994 (c. 9)
19
In section 229(1)(ca) of FA 1994 (Lloyd’s corporate members: regulations),
15
for sub-paragraph (ii) substitute—
“(ii)
arrangements involving repos (within the meaning of
paragraph 15 of Schedule 13 to the Finance Act 2007)
or redemption arrangements (within the meaning of
that paragraph);”.
20
Finance Act 2006 (c. 25)
20
In section 139 of FA 2006 (Real Estate Investment Trusts: manufactured
dividends), omit subsection (5).
Income Tax Act 2007 (c. 3)
21
ITA 2007 is amended as follows.
25
22
In section 602(1)(b) (deemed manufactured payments: repos), for “the
repurchase price of the securities became due” substitute “the distribution
was payable”.
23
In section 607 (treatment of price differences under repos), after subsection
(7) insert—
30
“(7A)
A company within the charge to corporation tax is not to be treated
as a result of this section as making any payment of interest for
income tax purposes.”
24
In section 886(2) (interest paid by recognised clearing houses etc), after
“repos)” insert “, or paragraph 5 of Schedule 13 to FA 2007 (relief for
35
borrower for finance charges in case of debtor repos and debtor quasi-
repos),”.