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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Deemed loan relationships: repos: tax rules: interaction with other tax rules

Interaction with other tax rules

Shares as debt and creditor repos

Where a lender in a creditor repo or creditor quasi-repo is taxable on its finance return under CTA09/PT6/CH10, it is not also taxable under the ‘shares as debt’ rules in CTA09/PT6/CH7 (CFM45000).

Treaty clearances and debtor repos

The finance charge under a debtor repo or debtor quasi-repo is treated as interest not only for loan relationships purposes, but also for the purposes of ITA07/PT15 (deduction of income tax).

In certain circumstances (see CFM46410) this deemed interest may be annual and thus subject to deduction of tax. If deemed annual interest is paid to a resident of a country with which the UK has a Double Taxation Agreement, application may be made for the interest to be paid gross or at a lower rate of deduction.

A situation may arise where clearance is given for a company with a debtor repo to pay deemed interest gross or at a lower rate of deduction to a resident of a treaty country, but the original lender later novates its rights and obligations under that repo to another non-resident entity. In that case the treaty clearance given in respect of the anticipated payment to the first non-resident will apply to the actual payment to the second non-resident.