CFM20360 - Securitisation: taxation: periods beginning on or after 1 January 2007: the regulations: scope
Regulation 3: scope
Regulation 3 sets out the scope of the regulations. The
regulations apply to a ‘securitisation company’ as
defined in regulations 4 to 10. These are five specified types of
company in regulations 5 to 9, each of which has to have a
‘retained profit’ (defined in regulation 10).
Certain ‘specified’ regulations do not apply to
companies that do not meet the ‘payments condition’ or
have had an ‘unallowable purpose’ at any time. The
specified regulations are the special corporation tax charge in
regulation 14 and the modifications to the normal corporation tax
rules in regulations 16 to 20.
So a company will only be taxed under the special rules in
the securitisation regime if it:
- conforms to the definition of a securitisation company (regulations 4 to 9)
- has a retained profit (regulation 10)
- complies with the payments condition (regulation 11)
- does not have an unallowable purpose (regulation 12).
The consequence of failing the payments condition or unallowable
purposes tests is that the company will no longer be taxed under
regulation 14, and will be taxed under normal CT rules. Once out of
the regime due to failing the payments condition or having an
unallowable purpose, it is permanently excluded (see regulation
21). This is to ensure that a company does not contrive to be taxed
under the securitisation rules when it has profits, but under
normal CT rules when it has losses.
Exclusion from the regime will be a rare event. Compliance
with the payments condition will normally be a routine matter in
practice – the appropriate compliance standards are discussed
in detail at
CFM20490. The unallowable purposes test
is there to prevent avoidance and is similar to the unallowable
purposes tests found in other parts of the Taxes Acts.
‘Securitisation companies’ not taxed under these regulations
Regulations 11 and 12 disapply the special corporation tax
charge in regulation 14 and the modifications to other tax rules in
regulation 16 to 20 (
CFM20480) where a company fails the
payments condition or the unallowable purposes test. It will still
be a ‘securitisation company’ within the scope of these
regulations, and other securitisation companies in the chain will
be unaffected by the fact that one company has failed the payments
condition or the unallowable purposes test. The failed company will
be taxed in accordance with its accounts (either IAS or UK GAAP). A
company that was originally in the interim regime in FA05/S83 (and
elected into the permanent regime) will not go back to being taxed
according to the interim regime, although if its accounts are
prepared under UK GAAP (excluding FRS25 and FRS26) it may come to
the same thing. In such cases, regulation 21 prevents the company
from reverting to being taxed under section 83.
However, a company may cease to be within the scope of the
regime by failing the definition of a ‘securitisation
company’ in regulations 4 to 9. Such a company will, if it
was originally within FA05/S83 and still meets the definitions in
that legislation, go back to being taxed under FA05/S83 (
CFM20210). This is because in such a
case the company will be entirely outside the application of the
regulations, including regulation 21.
