Draft Stocklending Anti-avoidance Legislation
Press Release - 13 November 2000
Draft legislation to prevent abuse of stock lending rules was published today. It will be included in next year's Finance Bill and takes effect from 3 October 2000.
This follows an announcement by Paymaster General Dawn Primarolo on 2 October 2000. The legislation will ensure that a stock borrower cannot obtain a tax deduction for an amount representing interest or dividends on the borrowed stock if it does not make a representative payment to the lender.
Details
Stock lending arrangements are a well-established part of financial market operations. Standard stock lending agreements transfer securities to the borrower and oblige the borrower both to return them, or equivalent securities, at a future date and to make payments to the lender representing any interest or dividends arising on the securities during the course of the loan.
To prevent tax avoidance through a person lending stock without a requirement for such representative payments, but taking an equivalent return in non-taxable form, section 736B ICTA 1988 was introduced in Finance Act 1997. This deems a payment to have been made where none actually is.
However tax avoidance schemes have been marketed that aimed to take advantage of this rule. They contrive stock lending arrangements, without representative payments, between a UK tax-paying borrower and a lender either outside the UK tax or with substantial tax losses.
If successful, the schemes had the potential to cost the Exchequer many hundreds of millions of pounds, by giving an immediate tax deduction for a borrower who incurs no actual cost, without correspondingly effectively taxing the lender.
The new legislation will add a further subsection to section 736B making it clear that the section will not entitle the stock borrower to a deduction for any payment that the section deems to be made. The new rules will apply to payments section 736B deems to be made on or after 3 October 2000.
The draft legislation is now available on the Inland Revenue website at www.inlandrevenue.gov.uk or by telephoning 020 7438 7617. Comments on the draft legislation should be made to:
Ian Valentine
Inland Revenue Business Tax
Room S3
West Wing
Somerset House
Strand
London WC2R 1LB
Tel: 020 7438 7617
e-mail: Ian.Valentine@ir.gsi.gov.uk
The Draft Clauses
This document is in PDF format.
To view a PDF document you must have Adobe Acrobat Reader installed on your computer. If you require this material in large print or Braille please contact your local HMRC office, or enquiry centre; for paper material contact your ordering service.
