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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: structured finance: the relevant effects

The tax treatment of a simple case covered by S758

If a case is one to which section 758 applies because the conditions in subsection (2) are met, then the tax treatment of the transaction is set out in sections 759 and 760.

It is first necessary to determine if the structured finance arrangement would, as far as the borrower is concerned, and apart from sections 759 and 760, have had ‘the relevant effect’. If the structured finance arrangement would have had that relevant effect, then it is not to have that effect for tax purposes.

In other words section 759 asks what the effect of the arrangements would be in the absence of section 759. If the effect is a relevant one then for tax purposes that effect is reversed so that the taxpayer is restored to the position that would have applied had the arrangement not been entered into. In addition, as explained at example 2 at CFM73030, the borrower will normally be entitled to a deduction for any finance charge shown in its accounts. This means that in most cases, it will be possible simply to follow the accounts.

There are three relevant effects. These are explained at CFM73100 to CFM73130.

The provisions were previously at Section 774B (1) ICTA88. This was amended and sections 774 (1A) and (1B) (now CTA10/S759 and S760) were inserted by FA 2007 to clarify application of this section. The FA 2007 amendments apply to any arrangements whenever made, but for arrangements made prior to 6 March 2007, they only apply to amounts charged to tax or brought into account for tax purposes arising on or after 6 March 2007. The amendment is to deal with cases where the asset transferred under the arrangement is not income-producing at the point of transfer but becomes income producing afterwards.