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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: stock loans: anti-avoidance: quasi-stock lending arrangements and quasi-cash collateral

Anti avoidance provisions extended to quasi-stock lending arrangements and quasi-cash collateral

Quasi-stock lending and quasi-cash collateral were concepts introduced in ICTA88/S736D by Finance Act 2006. These concepts were used to extend the stock lending anti-avoidance provisions at ICTA1988/S736C (CFM74170) to cover arrangements that seek to achieve the same economic effect as stock lending arrangements with cash collateral, but are designed to fall outside the tax definitions of those terms.

ICTA88/S736D was repealed for companies with effect from 22 April 2009 following the introduction of the disguised interest rules in CTA09/PT6/CH2A (CFM42000). ICTA88/S736D was rewritten for income tax purposes in ITA07/S599-S600.

The provisions of ITA07/S599-S600 apply to any arrangement made on or after 22 March 2006 and treat quasi-stock lending as if it were stock lending and quasi-cash collateral as if it were cash collateral for the purposes of ITA07/S597-S598. ITA07/S599 also ensures that where the tax advantage arising in a quasi-stock lending arrangement was designed to be obtained by a person other than the borrower in that arrangement, the interest arising on quasi-cash collateral is deemed to be received by that other person.

A quasi-stock lending arrangement is defined in ITA07/S600(2) and includes any arrangements that are not stock lending arrangements, but where the lender transfers securities to a borrower and the borrower, or any other person, is then required to transfer any of the securities or any other property back to the lender, or any other person. This prevents substitution of ‘property’ (in any form) in place of original securities and ‘any other person’ in place of the original borrower or lender, into a standard stock lending arrangement simply in order to circumvent the statutory definition of stock lending arrangement given in TCGA1992/S263B.

Quasi-cash collateral is defined in ITA07/S600(4) in relation to any stock lending arrangement or any quasi-stock lending arrangement. Quasi-cash collateral is any money payable or any other property transferable to the stock or quasi-stock lender, or any person connected with the lender, for the purpose of securing discharge of the requirement to return securities transferred under the stock loan or quasi stock loan. This prevents substitution of ‘property’ (in any form) in place of money in cash collateral arrangements, or the payment or transfer of quasi-cash collateral to a person other than the original lender in the quasi-stock lending arrangement, simply in order to circumvent ITA07/S597.

It is believed that ICTA88/S736D blocked most potential methods to circumvent ICTA88/S736C that might be exploited by the tax avoidance industry.