Other tax rules on corporate debt: transfers of income streams: company transferors: exclusions
Company transferors: exclusions
CTA10/S754 provides an exclusion to the extent that the ‘relevant amount’ (CFM77060) is
- already charged to tax as the income of the transferor;
- brought into account in calculating the transferor’s profits; or
- brought into account as income for capital allowances purposes.
This exclusion will, for example, apply where the relevant amount is taxed as income under the loan relationships legislation in CTA09/Part 5 or the derivative contracts legislation in CTA09/Part 7 applies, or where the amounts are treated as trading receipts under Part 3.
S755 recognises that some transfers of the right to relevant receipts are in substance a transfer by way of security only. So the section does not apply if the transferor transfers the rights to the income streams as part of a structured finance arrangement and the consideration is an ‘advance’ to the transferor or a partnership of which the transferor is a member for the purposes of the legislation in sections CTA10/PT16/CH2.
A company wishes to obtain finance of £100m over 5 years. The company holds an asset on which income of £22.5m a year will arise. It transfers the right to this income, without the underlying asset, to the finance provider for a lump sum of £100m for a period of 5 years. During the 5 years, income in total of £112.5m is paid to the bank, effectively repaying the lump sum with interest.
The company treats the arrangement for accounts purposes as a loan, recording the £100m as a financial liability that is repaid using income from the asset.
The arrangement is structured finance within the meaning of CTA10/PT16/CH2. Because the consideration for the transfer is the advance under a structured finance arrangement, S755 ensures that it is not taxed under the transfer of income streams rules.