Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

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
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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.
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(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.
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(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.
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(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
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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
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(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.
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(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
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(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.
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(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).
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(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
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(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
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“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.