Finance Act 2007

Ignoring effect on borrower of sale of securities: debtor repos, debtor quasi-repos and other arrangements

4 (1) This paragraph applies if a company (“the borrower”)—

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

(b) has a liability which is discharged under a relevant arrangement.

(2) A relevant arrangement is one in relation to which conditions C and D in paragraph 3 are met and the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage.

(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 have effect as if—

(a) the borrower held the securities that are initially sold for any period for which the arrangement is in force, and

(b) the borrower did not receive in that period amounts representative of income payable in respect of those securities.

(4) But—

(a) no amount is to be charged to corporation tax as a result of sub-paragraph (3)(a) unless 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 taken into account in calculating the amounts which are so recognised, and

(b) there is the following exception to sub-paragraph (3) if the securities that are initially sold are overseas securities.

(5) In the case of any overseas dividend payable in respect of those securities, the entitlement of the borrower to double taxation relief in respect of that dividend is determined as if—

(a) sub-paragraph (3) were omitted,

(b) the borrower received a payment of an amount which is representative 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.

(6) For the purposes of this paragraph “double taxation relief” means any relief given under or as a result of Part 18 of ICTA.