Income and Corporation Taxes Act 1988

[F1 737A Sale and repurchase of securities: deemed manufactured payments. U.K.

(1) This section applies where on or after the appointed day a person (the transferor) agrees to sell any securities, [F2 and the transferor or a person connected with him—

(a) is required to buy them back in pursuance of an obligation imposed by, or in consequence of the exercise of an option acquired under, that agreement or any related agreement, or

(b) acquires an option to buy them back under that agreement or any related agreement which he subsequently exercises;]

but this section does not apply unless [F3 either the conditions set out in subsection (2) below or the conditions set out in subsection (2A) below] are fulfilled.

(2) The [F4 first set of conditions referred to in subsection (1) above] are that—

(a) as a result of the transaction, a dividend which becomes payable in respect of the securities is receivable otherwise than by the transferor,

(b) F5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) there is no requirement under any agreement mentioned in subsection (1) above for a person to pay to the transferor on or before the relevant date an amount representative of the dividend, and

(d) it is reasonable to assume that, in arriving at the repurchase price of the securities, account was taken of the fact that the dividend is receivable otherwise than by the transferor.

[F6 (2A) The second set of conditions referred to in subsection (1) above are that—

(a) a dividend which becomes payable in respect of the securities is receivable otherwise than by the transferor,

(b) the transferor or a person connected with him is required under any agreement mentioned in subsection (1) above to make a payment representative of the dividend,

(c) there is no requirement under any such agreement for a person to pay to the transferor on or before the relevant date an amount representative of the dividend, and

(d) it is reasonable to assume that, in arriving at the repurchase price of the securities, account is taken of the circumstances referred to in paragraphs (a) to (c).]

(3) For the purposes of [F7 subsections (2) and (2A)] above the relevant date is the date when the repurchase price of the securities becomes due.

(4) Where it is a person connected with the transferor who is required to buy back the securities, or who acquires the option to buy them back, references in the following provisions of this section to the transferor shall be construed as references to the connected person.

(5) Where this section applies, F8 . . . Schedule 23A and dividend manufacturing regulations [F9 , and section 97 of the Finance Act 1996 (loan relationships: manufactured interest),] shall apply [F10 for corporation tax purposes][F11 , subject to subsection (5A) below,] as if—

(a) the relevant person were required, under the arrangements for the transfer of the securities, to pay to the transferor an amount representative of the dividend mentioned in subsection (2)(a) [F12 or (2A)(a)] above,

(b) a payment were made by that person to the transferor in discharge of that requirement, and

(c) the payment were made on the date when the repurchase price of the securities becomes due.

[F13 (5A) If the relevant person is not the person to whom the transferor agreed to sell the securities, the relevant person is not entitled, by virtue of anything in Schedule 23A or any provision of dividend manufacturing regulations, or otherwise—

(a) to any deduction in computing profits or gains for the purposes of F14 . . . corporation tax, or

(b) to any deduction against F14 . . . total profits,

by virtue of subsection (5) above.

F14 . . . An amount may not be surrendered by way of group relief if a deduction in respect of it is prohibited by this subsection.]

(6) In [F15 this section]“the relevant person” means—

(a) where subsection (1)(a) above applies, the person from whom the transferor is required to buy back the securities;

(b) where subsection (1)(b) above applies, the person from whom the transferor has the right to buy back the securities;

and in [F15 this section]“dividend manufacturing regulations” means regulations under Schedule 23A (whenever made).]

Textual Amendments

F1 Ss. 737A-737C inserted (3.5.1994) by Finance Act 1994 (c. 9), s. 122

F2 Words and paras. (a)(b) in s. 737A(1) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 7

F3 Words in s. 737A(1) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 2(2)

F4 Words in s. 737A(2) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 2(3)

F5 S. 737A(2)(b) repealed (with effect in accordance with s. 159(1), Sch. 41 Pt. 5(21) Note 1 of the repealing Act) by Finance Act 1996 (c. 8), s. 159(1), Sch. 41 Pt. 5(21); S.I. 1996/2646, art. 2

F6 S. 737A(2A) inserted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 2(4)

F7 Words in s. 737A(3) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 2(5)

F8 Words in s. 737A(5) repealed (with effect in accordance with Sch. 18, Pt. 6(10) Notes 3, 4) by Finance Act 1997 (c. 16), Sch. 18 Pt. 6(10); S.I. 1997/991, art. 2

F9 Words in s. 737A(5) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 173(2)(a) (with Sch. 2)

F10 Words in s. 737A(5) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 173(2)(b) (with Sch. 2)

F11 Words in s. 737A(5) inserted (with effect in accordance with Sch. 6 para. 5(5) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 5(2)

F12 Words in s. 737A(5)(a) inserted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 2(6)

F13 S. 737A(5A) inserted (with effect in accordance with Sch. 6 para. 5(5) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 5(3)

F14 Words in s. 737A(5A) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 173(3), Sch. 3 Pt. 1 (with Sch. 2)

F15 Words in s. 737A(6) substituted (with effect in accordance with Sch. 6 para. 5(5) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 5(4)

Modifications etc. (not altering text)

C1 S. 737A applied (with modifications) (2.1.1996) by The Sale and Repurchase of Securities (Modification of Enactments) Regulations 1995 (S.I. 1995/3220), regs. 1, 4

C2 S. 737A applied (with modifications) (2.1.1996) by The Sale and Repurchase of Securities (Modification of Enactments) Regulations 1995 (S.I. 1995/3220), regs. 1, 5

C3 S. 737A modified (19.7.2006) by Finance Act 2006 (c. 25), s. 139(1)(4)

C4 S. 737A(1) modified (1.1.1999) by The European Single Currency (Taxes) Regulations 1998 (S.I. 1998/3177), regs. 1, 14