CFM17510 - Repos: FA 2007 rules for companies:
debtor quasi-repo description
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
Description of a “debtor quasi-repo” (Paragraph 3
Schedule 13 FA 2007)
Like the “debtor repo,” a “debtor
quasi-repo” is a transaction from the point of view of the
borrower. The term covers arrangements that are economically
equivalent to standard debtor repos but are on non-standard terms
so that they are not within the definition of debtor repo. For
instance:
- Under the arrangement, the
“borrower” is not the seller of the securities but has
the seller’s (original borrower’s) rights and
obligations under the repo novated to it, so that it will be
entitled or obliged to buy them back. Since the borrower has not
sold securities, Condition C of the debtor repo conditions (
CFM17508) is not satisfied.
- The arrangement under which the securities
are sold provides only for a person other than the borrower to buy
them back, with the original borrower at some point paying the
other person to assume its obligations under the repo. In that case
Conditions D and E of the debtor repo conditions (
CFM17508) are not satisfied:
- The arrangement does not entitle or oblige the
“borrower” to buy the same or similar securities to
those it has sold (Condition D).
- The financial liability initially recorded in the
borrower’s accounts will be extinguished not by the
repurchase of the securities, but by payments under the contractual
arrangement between the borrower and that other person (Condition
E).
