CFM20390 - Securitisation: taxation: periods beginning on or after 1 January 2007: the regulations: the note-issuing company: ‘independent persons’
Independent persons
‘Independent persons’ takes its meaning from
FA05/S83 (8) and (9) and means persons not connected with the
company (excluding participators who are loan creditors).
‘Wholly or mainly’ takes its normal meaning as more
than 50% by value of the securities in question. The value of the
securities will normally be determined for this purpose by
reference to the carrying value of the related liabilities in the
accounts of the issuer, measured in accordance with generally
accepted accounting practice as defined in FA04/S50.
The independent persons test can be taken as applying by
reference to all securities that are issued as part of a single
capital market arrangement, rather than to each individual bond or
class of bonds. If a number of different capital market instruments
are issued within a reasonable period of one another (normally 20
days), in substance as part of a single issuance, it will be
accepted that the independent persons test is to be applied to all
such capital market investments in aggregate.
The ‘independent persons’ test will not be failed
where the issue is made ultimately to independent persons, even
though a non-independent person may act as an intermediary,
provided the non-independent person had (whether contractually or
purely as a commercial matter) no freedom to retain the notes in
question, or where the intermediary is acting as an underwriter in
the normal course of its business. For example, the notes may
initially be subscribed for by the lead manager and then on-sold,
in circumstances where the lead manager is connected with the
issuer. Or due to market conditions, or particularly complex
transactions or arrangements, there may be a subscription by a
company in the same group as the issuer, with the intention of
transferring the bonds to independent investors as soon as market
conditions allow.
Treasury notes
In some cases, part of an issuance of bonds is purchased on
issue by a trustee (either directly or via an underwriter) who
acquires the bonds to hold them as nominee for the issuer. The
arrangement is designed to enable the issuer to instruct the
nominee to sell bonds from time to time to third party purchasers
and account to the issuer for the proceeds. Bonds held by a nominee
under this type of arrangement are commonly called ‘treasury
notes’.
This is not comparable to cases where there is an issuance of
bonds in instalments, as part of a single funding transaction.
Rather, the purpose of ‘treasury note’ arrangements is
normally to put in place a framework to allow the treasury notes to
be (in effect) ‘issued’ to third parties over an
extended period, without any future sale of the notes being
specifically agreed at the outset. Where this is the case, for the
purposes of the ‘independent persons’ test:
- the treasury notes will not be treated as being ‘issued’ at the point where they are initially acquired by the trustee for the issuer (whether directly or via an underwriter)
- on each occasion when any treasury notes are subsequently sold by the trustee to third parties on the instructions of the issuer, the notes in question will be treated as being ‘issued’ to the third party purchasers at that stage.
