CFM17564 - Repos: FA 2007 rules for companies: treaty clearances and debtor repos

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

Interaction of treaty clearances and debtor repos

The finance charge under a debtor repo or debtor quasi-repo is treated as interest not only for loan relationships purposes, but also for the purposes of Part 15 of the Income Tax Act 2007 (deduction of income tax) (see CFM17524).

In certain circumstances (see CFM17295) this deemed interest may be annual and thus subject to deduction of tax. If deemed annual interest is paid to a resident of a country with which the UK has a Double Taxation Agreement, application may be made for the interest to be paid gross or at a lower rate of deduction.

A situation may arise where clearance is given for a company with a debtor repo to pay deemed interest gross or at a lower rate of deduction to a resident of a treaty country, but the original lender later novates its rights and obligations under that repo to another non- resident entity. In that case the treaty clearance given in respect of the anticipated payment to the first non-resident will apply to the actual payment to the second non- resident.