CFM17512 - Repos: FA 2007 rules for companies:
debtor quasi-repo definition
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
Definition of “debtor quasi-repo”
A company (“the borrower”) has a debtor quasi-repo
if it does not have a debtor repo, and if all of the following
conditions are met:
- Condition A: under an arrangement the
borrower receives from another person (“the lender”)
any money or other asset (“the advance”).
- Condition B: in accordance with GAAP the
accounts of the borrower record for the period in which the advance
is received a financial liability in respect of the advance.
- Condition C: under the arrangement or
another arrangement, the borrower or any other person sells
securities at any time.
- Condition D: that arrangement or other
arrangement
- provides that the borrower will or may become
entitled or obliged subsequently to buy those or any other
securities, or
- makes “other relevant provision”
whereby a person other than the borrower will or may become
entitled or obliged subsequently to buy the securities.
“Other relevant provision” means provision for the
receipt of money or some other asset from the borrower (or the
discharge of a liability owed to the borrower, whether by offset or
otherwise) for the purpose of enabling the other person to make the
subsequent purchase. For instance
- A borrower may pay money to a person to enable
that person to buy the securities; or
- That person may pay money to the borrower, because
the value of the securities that the person will acquire is greater
than the value of the obligation that it assumes to pay the
purchase price.
- Condition E: in accordance with GAAP, the
buying of the securities by the borrower or the receipt of the
asset from the borrower (or the discharge of the liability owed to
the borrower) would extinguish the financial liability in respect
of the advance that has been recorded in the accounts of the
borrower.
A company also has a debtor quasi-repo if it is a member of a
partnership that meets these conditions.
There are examples of debtor quasi-repos at
CFM17512a.
