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HMRC internal manual

Bank Levy Manual

Chargeable equity and liabilities: excluded equity and liabilities: sovereign repos

Paragraph 31 of Schedule 19

‘Repos’ or sale and repurchase agreements are transactions where one party (the borrower) sells securities to another (the lender) for cash, and repurchases the same or equivalent securities at a later date. The difference between the sale and repurchase price is the finance charge and the securities are the collateral for the in-substance lending transaction.

The exclusion for repo liabilities from the bank levy base where these are secured against sovereign and supranational debt is intended to reflect the relatively low risk associated with those instruments and the deep markets for the collateral. For tax purposes repos are defined at Part 6 Chapter 10 Corporation Taxes Act 2009.

The exclusion relies on FSA guidelines and covers repos of:

  • high quality debt securities issued by a government or central bank of an EEA State, Australia, Canada, Japan, Switzerland or the United States of America and which met the criteria for credit rating and currency denomination specified in the FSA Handbook, and
  • securities issued by a designated multilateral development bank or supranational institution*.

The definition of a designated multilateral development bank can also be found in the FSA handbook.

*Supranational institutions: are generally accepted as being international organisations, or unions, whereby member states transcend national boundaries or interests to share in the decision-making and vote on issues pertaining to the wider grouping. For example, the European Union and the World Trade Organisation are both supranational institutions.