Treatment of Price Differential on Sale and Repurchase of Securities

New clause 10 – in the House of Commons at 4:20 pm on 3rd April 1995.

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'.—(1) After section 730 of the Taxes Act 1988 there shall be inserted the following sections— Treatment of price differential on sale and repurchase of securities

730A.—(1) Subject to subsection (8) below, this section applies where—

  1. (a) a person ('the original owner') has transferred any securities to another person (`the interim holder') under an agreement to sell them;
  2. (b) the original owner or a person connected with him is required to buy them back either—
    1. (i) in pursuance of an obligation to do so imposed by that agreement or by any related agreement, or
    2. (ii) in consequence of the exercise of an option acquired under that agreement or any related agreement;
    and
  3. (c) the sale price and the repurchase price are different.

(2) The difference between the sale price and the repurchase price shall be treated for the purposes of the Tax Acts—

  1. (a) where the repurchase price is more than the sale price, as a payment of interest made by the repurchaser on a deemed loan from the interim holder of an amount equal to the sale price; and
  2. (b) where the sale price is more than the repurchase price, as a payment of interest made by the interim holder on a deemed loan from the repurchaser of an amount equal to the repurchase price.

(3) Where any amount is deemed under subsection (2) above to be a payment of interest, that payment shall be deemed for the purposes of the Tax Acts to be one that becomes due at the time when the repurchase price becomes due and, accordingly, is treated as paid when that price is paid.

(4) Where any amount is deemed under subsection (2) above to be a payment of interest, the repurchase price shall be treated for the purposes of the Tax Acts (other than this section and sections 737A and 737C) and (in cases where section 263A of the 1992 Act does not apply) for the purposes of the 1992 Act—

  1. (a) in a case falling within paragraph (a) of that subsection, as reduced by the amount of the deemed payment; and
  2. (b) in a case falling within paragraph (b) of that subsection, as increased by the amount of the deemed payment.

(5) For the purposes of section 209(2)(d) and (da) any amount which is deemed under subsection (2)(a) above to be a payment of interest shall be deemed to be interest in respect of securities issued by the repurchaser and held by the interim holder.

(6) Any amount which—

  1. (a) is deemed under subsection (2) above to he a payment of interest, and
  2. (b) does not fall (apart from this subsection) to he treated as yearly interest,
shall be treated for the purposes of section 338 as if the reference to yearly interest in subsection (3)(a) of that section included a reference to that amount.

(7) The Treasury may by regulations provide for any amount which is deemed under subsection (2) above to be received as a payment of interest to be treated, in such circumstances and to such extent as may be described in the regulations, as comprised in income that is eligible for relief from tax by virtue of section 438, 592(2), 608(2)(a), 613(4), 614(2), (3) or (4), 620(6) or 643(2).

(8) Except where regulations under section 737E otherwise provide, this section does not apply if—

  1. (a) the agreement or agreements under which provision is made for the sale and repurchase are not such as would be entered into by persons dealing with each other at arm's length; or
  2. (b) all of the benefits or risks arising from fluctuations, before the repurchase takes place, in the market value of the securities sold accrue to, or fall on, the interim holder.

(9) In this section references to the repurchase price are to be construed—

  1. (a) in cases where section 737A applies, and
  2. (b) in cases where section 737A would apply if it were in force in relation to the securities in question,
as references to the repurchase price which is or, as the case may be, would be applicable by virtue of section 737C(3)(b), (9) or (11)(c).