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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2007: the permanent regime

The permanent tax regime for securitisation companies

The basic definition of a securitisation company in CTA10/S623 is a company that is

  • party as debtor to a ‘capital market investment’ in respect of which securities are issued and which is part of a ‘capital market arrangement’,
  • and which meets other specified conditions,
  • or which is involved in the capital market arrangement in some other way.

Capital market arrangement

The first requirement therefore is for it to be part of a ‘capital market arrangement’ (CMA) involving a ‘capital market investment’ (CMI). These terms have specific legislative and regulatory requirements, and take their meanings from section 72B(1) and Schedule 2A of the Insolvency Act 1986, which were inserted by section 250 of and Schedule 18 to the Enterprise Act 2002.

The definition of a CMA is set out in detail in Schedule 2A. The part of the definition that is normally relevant in relation to a securitisation requires a grant of security to a person holding it as trustee for a person who holds a CMI issued by a party to the arrangement. A CMI is defined as a rated, listed or traded investment within article 77 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544). Article 77 covers debentures, loan stock, bonds, certificates of deposit and other debt instruments. Broadly speaking then, a CMA typically involves the issue of securities to third party investors and which are rated by an internationally recognised agency and traded on a recognised exchange.

Other conditions

In order to be within the special tax treatment set out in the regulations, a company that meets the primary definition of a ‘securitisation company’ will then need to meet the further specified conditions set out in Regulations made under FA05/S84. The regulations are the Taxation of Securitisation Companies Regulations 2006 (SI2006/3296) and have three key features.

  • They set out the further definitions and conditions that a company must meet in order to be within the tax regime for securitisation companies.
  • They set out how the normal CT rules are to be applied, modified or disapplied in arriving at the taxable profit of a securitisation company.
  • They provide the rules under which companies with a pre-existing securitisation will continue to be taxed under the interim regime unless they elect into the regime.