BIM64372 - Private finance initiative (PFI): refinancing gains: interest: letter
The following is the text of a letter, dated 8 October 2003, from CT & VAT’s predecessor, (Revenue Policy Business Tax) to the PFI working group.
Refinancing of PFI project companies
FA96/PARA13/SCH9
“You will be aware that your letter of 9 July … was discussed at the meeting of the PFI contact group on 11 July. At the end of the meeting I indicated that, in the light of the various points made to them, the Revenue representatives would give further consideration as to whether, and in what circumstances, Para 13 would apply to PFI refinancing arrangements which involved increasing the level of borrowings.
In the event, we decided to obtain advice from Counsel in the context of a particular case where a Code of practice 10 (CoP 10) application for Para 13 clearance had been submitted. That case concerned the proposed extraction of the shareholders’ share of the refinancing gain by way of a dividend. Counsel advised that to the extent that the proposed new increased borrowing by the PFI project company was used to fund the payment of the cash dividend to the shareholders, Para 13 (2) would be in point. Counsel indicated that the proportion of interest payable on the new borrowing to be disallowed should be calculated on a just and reasonable apportionment basis.
At the contact group meeting, the Revenue was given outline details of two alternative PFI refinancing structures: one involved a share repurchase and the other the sale of shares to a new company. After the meeting we were provided with papers giving further details of both structures. Having reviewed these, I can say that while we have concerns that Para 13 (2) and/or Para 13 (4) may be in point in relation to the share repurchase structure, we do not have the same concerns as regards the new company structure described in the paper provided to us (anonymised version attached) (see BIM64373).
CoP 10 sets out the circumstances when we are able to advise on queries, and also explains when we cannot. In working with the contact group, we have tried to make clear our interpretation of the application of Para 13. But we cannot assist with tax planning and we will not therefore be prepared to advise on queries which, in our view, fall into this category.
I realise that, at least in part, you will find the contents of this letter disappointing. Nevertheless, I trust that you and your colleagues will find it helpful to receive this clarification of the Revenue’s views on the application of Para 13."
