Corporation Tax Act 2009

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.

F1 547 Repo under arrangement designed to produce quasi-interest: tax avoidance U.K.

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Textual Amendments

F1 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