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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2007: the regulations: the note-issuing company

The note-issuing company: regulation 5

The note-issuing company is the key entity in the securitisation arrangement. It must meet four conditions.

  • It must be within CTA10/S623. That is, it has issued securities to investors in the form of a ‘capital market investment’ that is part of a ‘capital market arrangement’ (CFM72310).
  • The securities must be issued ‘wholly or mainly’ to ‘independent persons’.
  • The total value of the securities issued must exceed £10m.
  • The company’s only business, apart from being a debtor to a capital market arrangement and apart from any incidental activities, must be either:

    • acquiring, holding and managing financial assets (CFM72350) forming the whole or part of the security for the capital market arrangement, or
    • acting as guarantor in respect of loan relationships, derivative contracts, finance leases, or other liabilities of other companies, where the guarantor’s rights in respect of the guarantee (including any rights of subrogation) form the whole or part of the security for the CMA.

The £10m test

The value of the securities must be at least £10m at issue. The test is to be applied at the date of issue, even if the value has fluctuated in the run up to the issue. The value will normally be the carrying value of the liability that is represented by the securities in the issuer’s accounts, measured in accordance with generally accepted accounting practice as defined in FA04/S50.

Interpretation of other terms used in Regulation 5

CFM72390 and CFM72400 have guidance on the interpretation of ‘independent persons’ and ‘incidental activities’.

Non-resident note-issuing companies

A note issuing company can include a company that is outside the charge to corporation tax but which satisfies all the conditions in Regulation 5. (In addition, a note-issuer which is outside the charge to corporation tax does not need to satisfy the ‘retained profit’ condition (CFM72480) or the ‘payments condition’ (CFM72510) in order to satisfy the conditions in Regulation 5.) It follows, therefore, that other companies in the structure may be intermediate borrowing companies or asset-holding companies and within the regulations.