CFM17554 - Repos: FA 2007 rules for companies: amendment of paragraph 15 Schedule 9 FA 1996

This guidance describes the corporation tax treatment of sale and repurchase arrangements (“repos”) where the initial sale of securities takes place on or after 1 October 2007

New version of paragraph 15 Schedule 9 FA 1996

Paragraph 18 Schedule 14 FA 2007 introduces a new version of paragraph 15 Schedule 9 FA 1996.

Previous version of paragraph 15

The previous version of paragraph 15 statutorily prevented tax profits or losses from arising on transfers of loan relationships into and out of repos (and also stock loans), by providing that such transfers should not be treated as related transactions. As such a provision is now considered to be unnecessary (since accounts prepared in accordance with GAAP should not reflect any profits or losses on such transfers), it has not been reproduced in the new version of paragraph 15.

Application of loan relationships rules where company ceases to be party to relationship

The new version of paragraph 15 applies where a company has ceased to be party to a loan relationship but, in accordance with GAAP, continues to recognise amounts in respect of that relationship in determining its profit or loss. It provides that such amounts are to be brought into account in accordance with the loan relationships rules.

There are two circumstances where the conditions for paragraph 15 to apply are met, whose treatment is prescribed by other provisions.

• One is a borrower in a debtor repo or debtor quasi-repo where income arises on the securities during the period of the arrangement, where the treatment of the borrower is prescribed by paragraph 4 Schedule 13 FA 2007 ( CFM17514; since securities can include securities representing loan relationships).
• The other is where the profit or loss on the disposal of a loan relationship is not fully recognised in the accounts when the company ceases to be a party to the loan relationship (for instance because there is unascertainable deferred consideration), and credits or debits are brought into account in accounting periods after the company ceases to be a party to the relationship. The treatment of such amounts is prescribed by section 103(6) FA 1996.

To prevent the possibility of double taxation, paragraph 15 does not apply to amounts brought into account under paragraph 4 Schedule 13 FA 2007 or section 103(6) FA 1996.

Commencement dates

The new version of paragraph 15 applies

• For arrangements within Schedule 13 of FA 2007, to arrangements coming into force on or after 1 October 2007 (see CFM17500);
• For stock lending arrangements, to arrangements under which the stock is lent on or after 1 October 2007; and
• For other transactions, to disposals on or after 1 October 2007.