Chapter 5: Stock lending arrangements and repos
Overview
2412.This Chapter contains rules concerning stock lending arrangements and repos.
2413.The detailed structure of the Chapter is as follows:
Sections 805 to 807 – interpretation;
Sections 808 to 811 – tax credits: stock lending arrangements and repos;
Section 812 – deemed manufactured payments.
Sections 805 to 807: “Stock lending arrangement”; section 805: supplementary; “creditor repo”, “creditor quasi-repo”, “debtor repo” and “debtor quasi-repo”
2414.These interpretative sections are based on sections 231AA and 736B of ICTA, paragraph 1 of Schedule 23A to that Act and sections 263B and 263C of TCGA.
Section 808: No tax credits for borrower under stock lending arrangement
2415.This section prevents the borrower under a stock lending arrangement from claiming a tax credit when that person in economic terms does not retain a dividend on the securities, but passes it on to the lender, by way of a manufactured dividend or other means. It is based on section 231AA of ICTA and section 263B of TCGA.
Section 809: No tax credits for lender under creditor repo or creditor quasi-repo
2416.This section prevents the lender under a creditor repo or creditor quasi-repo from claiming a tax credit when that person in economic terms does not retain a dividend on the shares, but passes it on to the counterparty, by way of a manufactured dividend or other means. It is based on section 231AA of ICTA.
2417.Subsection (3)(b) refers to section 925A of ITA, which is based on paragraph 13 of Schedule 13 to FA 2007 and is inserted by Schedule 7 to TIOPA.
Section 810: No tax credits for borrower under debtor repo or debtor quasi-repo
2418.This section counters unusual repo arrangements where the borrower does not pass entitlement to the dividends to the counterparty but the borrower nonetheless receives a manufactured dividend. It is based on section 231AB of ICTA.
Section 811: Arrangements between companies to make distributions
2419.This section extends the meaning of distribution to encompass arrangements between two or more companies to make distributions to each other’s members. It is based on section 254(8) of ICTA.
Section 812: Deemed manufactured payments: stock lending arrangements
2420.This section deems the borrower in a stock lending arrangement to make a manufactured payment in certain circumstances. It is based on sections 231AA, 231AB and 736B of ICTA.
2421.Usually, a stock lending arrangement requires the borrower to make a manufactured payment to the lender, in which case Chapter 2 of this Part applies for corporation tax purposes.
2422.Exceptionally, a stock lending arrangement may be structured in such a way that the lender is not entitled to receive a manufactured payment, even though the lender has forgone interest or dividends on the securities transferred. In such a case, this section deems the borrower to make a manufactured payment. In consequence, Chapters 2 to 4 of this Part applies and, in particular, if the securities are overseas securities, the lender is deemed to receive a MOD. But the borrower is denied any tax relief for the deemed manufactured payment.
