CFM17190 - Repos: commercial background: net paying repo

A description of a net paying repo

In the net paying repo the repurchase price that would be paid in a standard repo is netted against dividends or interest received by the interim holder and for which the interim holder does not have to make any corresponding manufactured payments.

In its normal form the net paying repo is a straightforward commercial alternative to the standard variety, but the mechanistic nature of the taxing rules have led to this type of repo being widely used for tax avoidance. The example at CFM17190a gives an example of how the net paying repo works in practice. The tax rules are described at CFM17235.