How is a borrower company taxed during a debtor repo arrangement under section 550 of the Corporation Tax Act 2009?

Under section 550, the borrower is treated for corporation tax purposes as if it still holds the securities it sold. Any manufactured payments the borrower receives representing income on those securities are ignored. The borrower is taxed on the actual interest or dividends arising on the securities rather than on manufactured payments received from the counterparty.

What is the accounting recognition requirement under Corporation Tax Act 2009 section 550?

No corporation tax charge arises from the deemed holding of securities unless the relevant amount is recognised in the borrower's profit or loss account under generally accepted accounting practice. Similarly, a manufactured payment is not ignored if it is recognised in the borrower's accounts. This ensures tax treatment aligns with the company's financial statements.

Can a borrower claim double taxation relief on overseas securities under section 550?

The borrower cannot use section 550 rules to claim double taxation relief on income from overseas securities themselves. However, if overseas tax has been deducted from a manufactured payment representing income on overseas securities, the borrower can still claim double taxation relief for that overseas tax under Part 2 of the Taxation (International and Other Provisions) Act 2010.

What types of arrangements does section 550 of the Corporation Tax Act 2009 apply to?

Section 550 applies when a borrower company has entered into a debtor repo, a debtor quasi-repo, or has a liability discharged under a relevant arrangement. A relevant arrangement is one meeting conditions C and D for a debtor quasi-repo where a main purpose is to obtain a tax advantage. The rules apply throughout the duration of the arrangement.

Corporation Tax Act 2009 section 550

Ignoring effect on borrower of sale of securities

Section 550 sets out how the corporation tax charge on a borrower company is adjusted when it has a debtor repo, debtor quasi-repo, or a liability discharged under a relevant arrangement, by treating the borrower as still holding the securities and ignoring manufactured payments it receives.

Where a company (the borrower) enters into a debtor repo, debtor quasi-repo, or discharges a liability under a relevant arrangement designed to obtain a tax advantage, special tax rules apply to the borrower's income during the arrangement
The borrower is treated for corporation tax purposes as if it still held the securities it sold, and any manufactured payments it receives representing income on those securities are ignored
However, amounts are only charged (or ignored) to the extent they are recognised in the borrower's profit or loss under generally accepted accounting practice, preventing charges or adjustments that fall outside the accounts
The borrower cannot claim double taxation relief on income from overseas securities under these rules, but it can still claim relief for any overseas tax actually deducted from manufactured payments representing income on overseas securities

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