Corporation Tax Act 2009

Chapter 10 U.K. Repos

Introduction U.K.

542 Introduction to Chapter U.K.

(1) The purpose of this Chapter is to secure that in the case of an arrangement—

(a) which involves the sale of securities and the subsequent purchase of those or similar securities, and

(b) which equates, in substance, to a transaction for the lending of money at interest from or to a company, with the securities which were sold as collateral for the loan,

the charge to corporation tax reflects the fact that the arrangement equates, in substance, to such a transaction.

(2) Sections 543 to [F1 546] make provision about arrangements which are creditor repos or creditor quasi-repos.

(3) Sections 548 to 551 make provision about arrangements which are debtor repos or debtor quasi-repos.

Textual Amendments

F1 Figure in s. 542(2) substituted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 24 paras. 10, 12

Creditor repos and creditor quasi-repos U.K.

543 Meaning of creditor repo U.K.

(1) For the purposes of this Chapter a company (“the lender”) has a creditor repo if each of conditions A to E is met.

(2) Condition A is that under an arrangement another person (“the borrower”) receives from the 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 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 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 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 firm of which the lender is a member.

544 Meaning of creditor quasi-repo U.K.

(1) For the purposes of this Chapter 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) each of conditions A to E is met in that case.

(2) Condition A is that under an arrangement a person receives from the 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 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

(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 an arrangement makes other relevant provision if it makes provision—

(a) for the receipt of any money, securities or other asset from the lender 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).

(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

(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 firm of which the lender is a member.

545 Ignoring effect on lender etc of sale of securities U.K.

(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 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.

(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 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.

(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 U.K.

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

(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,

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

(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

(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,

as the case may be.

F2 547 Repo under arrangement designed to produce quasi-interest: tax avoidance U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 S. 547 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(iii), 12

Debtor repos and debtor quasi-repos U.K.

548 Meaning of debtor repo U.K.

(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, the accounts of the borrower for the period in which the advance is received record a financial liability 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) 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.

(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 of which the borrower is a member.

Modifications etc. (not altering text)

C1 S. 548 applied by 2010 c. 4, s. 938I(3) (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 5 para. 2)

549 Meaning of debtor quasi-repo U.K.

(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

(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 record a financial liability in respect of the advance.

(4) Condition C is that under that or any other arrangement the borrower [F3 or any other person] 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 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 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 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

(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.

(8) For the purposes of conditions A to E references to the borrower include a firm of which the borrower is a member.

Textual Amendments

F3 Words in s. 549(4) inserted (1.4.2009 retrospective) by Corporation Tax Act 2009 (Amendment) Order 2009 (S.I. 2009/2860), arts. 1(2), 6(5)

Modifications etc. (not altering text)

C2 S. 549 applied by 2010 c. 4, s. 938I(3) (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 5 para. 2)

550 Ignoring effect on borrower of sale of securities U.K.

(1) This section 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—

(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.

(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

(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) to [F4 (5C)] .

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

(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.

[F5 (5A) For the purposes of the charge to corporation tax, an amount representative of income payable in respect of the securities is not to be ignored as a result of subsection (3)(b) if—

(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.]

[F6 (5B) Nothing in subsection (3) entitles the borrower to double taxation relief in respect of any income payable in respect of overseas securities.

(5C) But nothing in subsection (3) affects the entitlement of the borrower to double taxation relief in respect of any overseas tax deducted from any amount representative of income payable in respect of overseas securities.

(5D) In subsection (5C) “overseas tax” means tax under the law of a territory outside the United Kingdom.]

F7 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) For the purposes of this section “double taxation relief” means any relief given under or as a result of [F8 Part 2 of TIOPA 2010].

Textual Amendments

F4 Word in s. 550(4) substituted (1.1.2014) by Finance Act 2013 (c. 29), Sch. 29 paras. 37(a), 52

F5 S. 550(5A) inserted (retrospectively) by Finance Act 2010 (c. 13), s. 45(2)(b)(3)

F6 S. 550(5B)-(5D) inserted (1.1.2014) by Finance Act 2013 (c. 29), Sch. 29 paras. 37(b), 52

F7 S. 550(6) omitted (1.1.2014) by virtue of Finance Act 2013 (c. 29), Sch. 29 para. 37(c), 52

F8 Words in s. 550(7) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 92 (with Sch. 9 paras. 1-9, 22)

551 Relief for borrower for finance charges in respect of the advance U.K.

(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 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.

(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—

(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.

(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—

(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,

(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 U.K.

552 General provisions about arrangements U.K.

(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—

(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).

(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

(c) the discharge of the liability to the lender,

as the case may be.

(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,

(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 U.K.

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

(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 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.

554 Power to modify this Chapter U.K.

(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

(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

(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—

(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

• “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 section 547, as a creditor repo for the purposes of section 546).

555 Cases where section 554 applies: non-standard repos U.K.

(1) The cases to which this section applies are where—

(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 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.

(4) Condition C is that provision is made by or under an arrangement for securities to be treated as not so included.

Interpretation U.K.

556 Meaning of securities and similar securities U.K.

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

(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

(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,

is ignored.

Modifications etc. (not altering text)

C3 S. 556 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 18(11)

C4 S. 556 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 20(11)

C5 S. 556 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 25(4)

C6 S. 556 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 31(3)

C7 S. 556 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 22(3)

557 Meaning of person receiving an asset U.K.

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

(b) otherwise deriving any benefit from it directly or indirectly.

558 Interpretation of accounting expressions U.K.

(1) In determining for the purposes of this Chapter whether an amount is recorded as a financial asset or liability in respect of the advance, it is assumed that the period of account in which the advance is received or made ended immediately after the receipt or making of the advance.

(2) In its application for the purposes of this Chapter, section 309(1) applies as if the reference to a company were a reference to a person.

559 Minor definitions U.K.

In this Chapter—

• “advance”—

  (a)

  in the case of a creditor repo, has the same meaning as in section 543,

  (b)

  in the case of a creditor quasi-repo, has the same meaning as in section 544,

  (c)

  in the case of a debtor repo, has the same meaning as in section 548, and

  (d)

  in the case of a debtor quasi-repo, has the same meaning as in section 549,

• “arrangement” includes any agreement or understanding (whether or not it is legally enforceable),

• “creditor quasi-repo” has the meaning given by section 544,

• “creditor repo” has the meaning given by section 543,

• “debtor quasi-repo” has the meaning given by section 549,

• “debtor repo” has the meaning given by section 548,

• “discharge”, in relation to a liability, means the discharge of the liability in whole or in part (and “discharged” is to be read accordingly),

• “overseas dividend”, in relation to overseas securities, means any interest, dividend or other annual payment payable in respect of the securities, and

• “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

  (b)

  any other body of persons not resident in the United Kingdom.