The Taxation of Securitisation Companies Regulations 2006

These Regulations may be cited as the Taxation of Securitisation Companies Regulations 2006 and shall come into force on the day after the day on which they are made.

These Regulations have effect for periods of account beginning on or after 1st January 2007.

In these Regulations—

• “asset-holding company” has the meaning given by regulation 6;

• “capital market arrangement” and “capital market investment” have the same meaning as in section 72B(1) of the Insolvency Act 19862 (see paragraphs 1, 2 and 3 of Schedule 2A to that Act);

• “commercial paper funded company” has the meaning given by regulation 9;

• “financial asset” has the meaning it has for generally accepted accounting practice (subject to paragraph (2)) but—

  1. a

     includes derivative contracts as defined for the purposes of Schedule 26 to the Finance Act 2002 (see paragraph 2 (1) of that Schedule 3) whether otherwise constituting an asset or a liability, and

  2. b

     does not include shares (other than shares in a securitisation company which is party to the capital market arrangement);

• “ICTA” means the Income and Corporation Taxes Act 19884;

• “independent persons” means persons who are not connected with a company (and see paragraph (3));

• “intermediate borrowing company” has the meaning given by regulation 7;

• “note-issuing company” has the meaning given by regulation 5;

• “related transaction” is to be construed in accordance with paragraphs (4) and (5);

• “retained profit” is to be construed in accordance with regulation 10;

• “securitisation company” has the meaning given by regulation 4;

• “specified regulations” means regulations 14 (corporation tax charge) and 16 to 20 (application, modification and non-application of provisions of the Corporation Tax Acts);

• “warehouse company” has the meaning given by regulation 8.

For the purposes of these Regulations whether an asset acquired, held or managed by a company is a financial asset shall be determined at the time that asset is first acquired, held or managed by that company.

Section 839 of ICTA5 (connected persons) applies for the purposes of the definition of “independent persons”, except that in applying the definition of “control” in that section a person is not to be treated as a participator in a company by reason only that he is a loan creditor of the company.

These Regulations make provision as to the application of the Corporation Tax Acts in relation to a securitisation company.

For the purposes of these Regulations a “securitisation company” means a company that meets conditions A and B.

Condition B is that the company has a retained profit (see regulation 10).

For the purposes of these Regulations a “note-issuing company” means a company that meets conditions A to D.

Condition A is that the company is within section 84(2)(a) of the Finance Act 2005.

Condition B is that the securities that represent the capital market investment referred to in section 84(2)(a)(ii) of that Act are issued wholly or mainly to independent persons.

Condition C is that the total value of the capital market investments made under the capital market arrangement referred to in section 84(2)(a)(iii) of that Act is at least £10 million.

For the purposes of these Regulations an “asset-holding company” means a company that meets conditions A and B.

Condition A is that the company’s business, apart from any incidental activities, consists in acquiring, holding and managing financial assets forming the whole or part of the security for a capital market arrangement entered into by a note-issuing company.

Condition B is that the company’s liabilities representing debtor relationships are owed wholly or mainly to a note-issuing company or intermediate borrowing company.

For the purposes of these Regulations an “intermediate borrowing company” means a company that meets conditions A and B.

Condition B is that the company’s liabilities representing debtor relationships are owed wholly or mainly to a note-issuing company or another intermediate borrowing company.

For the purposes of these Regulations the “retained profit” of a securitisation company for an accounting period is the amount required by the capital market arrangement or a related transaction to be retained, made available to be retained, or designated as profits of the securitisation company (however described).

If retained profit relates to two or more accounting periods, it shall be apportioned on a just and reasonable basis between them.

The payments condition is that in any accounting period R is equal to or less than the sum of P + RA + RP

In paragraph (2)—

• R is, subject to paragraph (6), the aggregate of—

  1. a

     amounts received by the securitisation company in the accounting period, and

  2. b

     amounts which have been—

     1. i

        retained as RA in that accounting period, or

     2. ii

        taken into account as RA for the purposes of this regulation in a previous accounting period,

     where those amounts are no longer reasonably required to be retained as RA;

• P is the aggregate amount of—

  1. a

     payments made by the securitisation company in the accounting period and the following 18 months except payments which have already been taken into account for the purposes of this regulation for a previous accounting period, and

  2. b

     payments made by the securitisation company in the previous accounting period but not taken into account for the purposes of this regulation;

• RA is the aggregate of amounts retained by the securitisation company in the accounting period, which have not already been taken into account for the purposes of this regulation in a previous accounting period, which are reasonably required to—

  1. a

     provide for losses or expenses arising from the company’s business, or

  2. b

     maintain or enhance the company’s creditworthiness; and

• RP is the amount of the retained profit of the securitisation company in the accounting period.

If a securitisation company receives amounts or makes payments of amounts in a currency other than its functional currency, that amount shall be translated into the functional currency by reference to the appropriate exchange rate for the last day of the accounting period.

In this regulation—

• “appropriate exchange rate” has the meaning given in section 92D(2)(b) of the Finance Act 19936;

• “functional currency” has the meaning given in section 92E(3) of the Finance Act 19937;

• “payment” includes part of a payment.

In this regulation—

• “tax avoidance purpose” means any purpose that consists in securing a tax advantage for any other person;

• “tax advantage” has the same meaning as in section 709(1) of ICTA (tax avoidance).

The company may elect by notice in writing to Her Majesty’s Revenue and Customs, within 18 months of the end of that period, that these Regulations shall apply.

An election under paragraph (2) is irrevocable.

In paragraph (1)—

• RP is the amount of the retained profit of the securitisation company for the accounting period;

• DS is the amount of any distribution received in that accounting period from another securitisation company which is party to the capital market arrangement where the distribution is made from that company’s retained profit;

• D is the greater of—

  1. a

     the amount equal to the aggregate of any dividends paid by the securitisation company in that and any previous accounting period, less—

     1. i

        RP for the accounting period,

     2. ii

        the aggregate of profits calculated under this regulation for previous accounting periods,

     3. iii

        the aggregate of DS calculated under this regulation for previous accounting periods, and

     4. iv

        the amount of any dividends paid out of profits arising in any previous accounting period in which these Regulations did not apply; and

  2. b

     nil.

The specified amount is any credit that would be brought into account by the securitisation company in the accounting period in consequence of paragraph 12A of Schedule 9 to the Finance Act 1996 (transferee leaving group after replacing transferor as party to loan relationship)9 or paragraph 30A of Schedule 26 to the Finance Act 2002 (transferee leaving group after replacing transferor as party to derivative contract)10.

The amount of profit calculated under this regulation shall be brought into account for corporation tax purposes instead of any other amount that would fall to be brought into account.