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Corporation Tax Bill


Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

261

 

545     

Ignoring effect on lender etc of sale of securities

(1)   

This section 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

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

5

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 of

income payable in respect of the securities.

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(3)   

But subsection (2) is subject to subsections (4) and (5).

(4)   

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

subsection (2)(a) if—

(a)   

it is, in accordance with generally accepted accounting practice,

recognised in determining the lender’s profit or loss for that or any

15

other period, or

(b)   

it is taken into account in calculating the amounts which are so

recognised.

(5)   

A payment is not to be ignored for the purposes of that charge as a result of

subsection (2)(b) if it is, in accordance with that practice, so recognised.

20

(6)   

Nothing in subsection (5) affects the question whether (apart from that

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

income for corporation tax purposes or against total profits.

546     

Charge on lender for finance return in respect of the advance

(1)   

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

25

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 Part 5 and this Part as a money debt

which—

(a)   

is owed to the lender or, if the lender is a member of a firm which makes

30

the advance, to the firm, 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 is

treated as arising for those purposes.

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(4)   

Any amount which, in accordance with generally accepted accounting

practice, is recorded in—

(a)   

the accounts of the lender, or

(b)   

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

accounts of the firm,

40

   

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

interest receivable under that debt.

(5)   

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

(a)   

the time when the relevant repurchase takes place, and

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

262

 

(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 or

similar securities, and

5

(b)   

if the lender has a creditor quasi repo—

(i)   

the subsequent sale of the securities or other securities by the

lender,

(ii)   

the receipt of the asset from the lender, or

(iii)   

the discharge of the liability to the lender,

10

   

as the case may be.

547     

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

(1)   

This section applies if—

(a)   

under an arrangement a person receives any money or other asset (“the

advance”) from a company or a firm of which the company is a

15

member,

(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 sections 543 and 544 in

the light of that assumption),

20

(c)   

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

to the company or firm 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.

25

(2)   

Section 546 applies 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 section

546(4).

(3)   

In this section “the applicable accounting assumption” is the assumption that,

30

in accordance with generally accepted accounting practice, the accounts of the

company (or the firm of which it is a member) for the period in which the

advance is made record a financial asset in respect of the advance.

Debtor repos and debtor quasi-repos

548     

Meaning of debtor repo

35

(1)   

For the purposes of this Chapter a company (“the borrower”) has a debtor repo

if each of conditions A to E is met.

(2)   

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

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

(3)   

Condition B is that, in accordance with generally accepted accounting practice,

40

the accounts of the borrower for the period in which the advance is received

record a financial liability in respect of the advance.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

263

 

(4)   

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

any time to the lender.

(5)   

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

imposing an obligation on the borrower to buy those or similar securities at

any subsequent time.

5

(6)   

Condition E is that, in accordance with generally accepted accounting practice,

the subsequent buying of those or similar securities would extinguish the

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

borrower.

(7)   

For the purposes of conditions A to E references to the borrower include a firm

10

of which the borrower is a member.

549     

Meaning of debtor quasi-repo

(1)   

For the purposes of this Chapter a company (“the borrower”) has a debtor

quasi-repo in any case if—

(a)   

the borrower does not have a debtor repo, and

15

(b)   

each of conditions A to E is met.

(2)   

Condition A is that under an arrangement the borrower receives any money or

other asset (“the advance”).

(3)   

Condition B is that, in accordance with generally accepted accounting practice,

the accounts of the borrower for the period in which the advance is received

20

record a financial liability in respect of the advance.

(4)   

Condition C is that under that or any other arrangement the borrower sells any

securities at any time.

(5)   

Condition D is that the arrangement or other arrangement—

(a)   

makes provision conferring a right or imposing an obligation on the

25

borrower to buy the securities or any other securities at any subsequent

time, or

(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

30

provision—

(a)   

for the receipt of any money or other asset from the borrower under

that arrangement for the purpose of enabling the other person to make

that subsequent purchase, or

(b)   

for the discharge of any liability to the borrower under that

35

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

(7)   

Condition E is that, in accordance with generally accepted accounting

practice—

(a)   

the subsequent buying of the securities or the other securities by the

borrower, or

40

(b)   

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

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

   

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

the accounts of the borrower.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

264

 

(8)   

For the purposes of conditions A to E references to the borrower include a firm

of which the borrower is a member.

550     

Ignoring effect on borrower of sale of securities

(1)   

This section applies if a company (“the borrower”)—

(a)   

has a debtor repo or a debtor quasi-repo, or

5

(b)   

has a liability which is discharged under a relevant arrangement.

(2)   

A relevant arrangement is one—

(a)   

in relation to which conditions C and D in section 549 are met, and

(b)   

the main purpose or one of the main purposes of which is the obtaining

of a tax advantage.

10

(3)   

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

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

apply as if—

(a)   

the borrower held the securities which are initially sold for any period

for which the arrangement is in force, and

15

(b)   

the borrower did not receive in that period amounts representative of

income payable in respect of the securities.

(4)   

Subsection (3) is subject to subsections (5) and (6).

(5)   

No amount is to be charged to corporation tax as a result of subsection (3)(a)

unless—

20

(a)   

it is, in accordance with generally accepted accounting practice,

recognised in determining the borrower’s profit or loss for that or any

other period, or

(b)   

it is taken into account in calculating the amounts which are so

recognised.

25

(6)   

If the securities which are initially sold are overseas securities, the entitlement

of the borrower to double taxation relief in respect of any overseas dividend

payable in respect of those securities is determined as if—

(a)   

subsection (3) were omitted,

(b)   

the borrower received a payment of an amount which is representative

30

of that dividend,

(c)   

the payment were made under a requirement of the arrangement, and

(d)   

the payment were made on the date on which that dividend is payable.

(7)   

For the purposes of this section “double taxation relief” means any relief given

under or as a result of Part 18 of ICTA.

35

551     

Relief for borrower for finance charges in respect of the advance

(1)   

This section applies if a company (“the borrower”) has a debtor repo or a

debtor quasi-repo.

(2)   

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

borrower, to be treated for the purposes of Part 5 and this Part as a money debt

40

which—

(a)   

is owed by the borrower or, if the borrower is a member of a firm which

receives the advance, by the firm, and

(b)   

is owed to the person to whom the securities are initially sold.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

265

 

(3)   

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

of Part 5 and this Part as a transaction for the lending of money from which that

debt is treated as arising for those purposes.

(4)   

Any amount which, in accordance with generally accepted accounting

practice, is recorded as a finance charge in respect of the advance in—

5

(a)   

the accounts of the borrower, or

(b)   

if the borrower is a member of a firm which receives the advance, the

accounts of the firm,

   

is treated for the purposes of Part 5, this Part and Part 15 of ITA 2007

(deduction of income tax at source) as interest payable under that debt.

10

(5)   

That interest is treated for those purposes as paid at 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.

(6)   

For this purpose “the relevant repurchase” means—

15

(a)   

if the borrower has a debtor repo, the subsequent buying of the

securities or similar securities, and

(b)   

if the borrower has a debtor quasi-repo—

(i)   

the subsequent buying of the securities or other securities by the

borrower,

20

(ii)   

the receipt of the asset from the borrower, or

(iii)   

the discharge of the liability to the borrower,

   

as the case may be.

General provisions

552     

General provisions about arrangements

25

(1)   

For the purposes of this Chapter 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.

(2)   

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

the securities are initially sold until the earlier of—

30

(a)   

the time when the relevant repurchase takes place, and

(b)   

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

place.

(3)   

In subsection (2) “the relevant repurchase” has the meaning given by

subsections (4) to (7).

35

(4)   

In the case of a creditor repo, it means the subsequent sale of the securities or

similar securities.

(5)   

In the case of a creditor quasi-repo, it means—

(a)   

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

(b)   

the receipt of the asset from the lender, or

40

(c)   

the discharge of the liability to the lender,

   

as the case may be.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

266

 

(6)   

In the case of a debtor repo, it means the subsequent buying of the securities or

similar securities.

(7)   

In the case of a debtor quasi-repo, it means—

(a)   

the subsequent buying of the securities or other securities by the

borrower,

5

(b)   

the receipt of the asset from the borrower, or

(c)   

the discharge of the liability to the borrower,

   

as the case may be.

553     

Persons buying or selling for others

(1)   

For the purposes of this Chapter, in any case where—

10

(a)   

a person (“A”) buys securities (or has a right or obligation to buy

securities), but

(b)   

the securities are (or are to be) held for the benefit of another person

(“B”),

   

B (not A) is treated as buying (or having the right or obligation to buy) the

15

securities.

(2)   

In any case where—

(a)   

a person (“C”) sells securities, but

(b)   

the proceeds of the sale are held for the benefit of another person (“D”),

   

D (not C) is treated as selling the securities.

20

554     

Power to modify this Chapter

(1)   

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

Chapter to apply with modifications in relation to—

(a)   

cases where section 555 (non-standard repo cases) applies, or

(b)   

cases involving redemption arrangements, or

25

(c)   

both of those cases.

(2)   

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 redeemed in

the period after their sale, and

30

(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

which will result from the redemption.

(3)   

The regulations may make—

35

(a)   

different provision for different cases, and

(b)   

incidental, supplemental, consequential and transitional provision and

savings.

(4)   

In this section and section 555

“modifications” include exceptions and omissions, and

40

“repo” means—

(a)   

a debtor repo or debtor quasi-repo, or

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

267

 

(b)   

a creditor repo or creditor quasi-repo (including anything

treated, as a result of section 547, as a creditor repo for the

purposes of section 546).

555     

Cases where section 554 applies: non-standard repos

(1)   

The cases to which this section applies are where—

5

(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 is met in relation to the repo.

(2)   

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

10

subsequently bought under the arrangement or arrangements.

(3)   

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 represent those initially

sold.

15

(4)   

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

securities to be treated as not so included.

Interpretation

556     

Meaning of securities and similar securities

(1)   

In this Chapter “securities” (except in the definition of “overseas securities” in

20

section 559) means—

(a)   

shares, stock or other securities issued by—

(i)   

the government of the United Kingdom,

(ii)   

any public or local authority in the United Kingdom, or

(iii)   

any UK resident company or other UK resident body, or

25

(b)   

overseas securities.

(2)   

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

holders to—

(a)   

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

dividends, and

30

(b)   

the same remedies for the enforcement of those rights.

(3)   

For the purposes of subsection (2) any difference in—

(a)   

the total nominal amounts of the respective securities,

(b)   

the form in which they are held, or

(c)   

the way in which they can be transferred,

35

   

is ignored.

557     

Meaning of person receiving an asset

For the purposes of this Chapter references to a person receiving any asset

include the person—

(a)   

obtaining the value of any asset directly or indirectly, or

40

(b)   

otherwise deriving any benefit from it directly or indirectly.

 
 

 
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